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CASE NO.:

Appeal (civil) 6178 of 2004

PETITIONER:

National Insurance Co. Ltd.

RESPONDENT:

Chella Bharathamma & Ors.

DATE OF JUDGMENT: 21/09/2004

BENCH:

ARIJIT PASAYAT & C.K. THAKKER

JUDGMENT:

J U D G M E N T

(Arising out of SLP (C) No.13208/2003)

(With C.A.6179/2004 @SLP(C) No. 13210/2003)

ARIJIT PASAYAT, J.

Leave granted.

National Insurance Company limited (hereinafter referred to as

the 'insurer') calls in question legality of the judgment rendered by a

learned Single Judge of the Andhra Pradesh High Court holding the

insurer to be liable for indemnifying the award of compensation.

Background facts in nutshell are as follows :

Three persons were traveling in an auto rickshaw which met with

an accident on 9.5.1992. Two persons lost their lives while one was

seriously injured. Claim petitions were filed by the legal

representatives of the two deceased persons while the injured filed

separate petition claiming compensation in terms of Section 166 of the

Motor Vehicles Act, 1988 (in short the 'Act') The auto rickshaw in

question belonged to Challa Atchayya (hereinafter referred to as the

'insured'). The insurer resisted the claim on the ground that the

insured had not obtained permit to ply the vehicle and therefore in

terms of the policy of the insurance the insurer had no liability. The

Motor Vehicle Accident Claims Tribunal, Krishna at Vijayawada (in short

the 'Tribunal') accepted the plea. It however, held that the insured

was liable to pay compensation which was fixed at Rs. 1,24,000/- in the

case of the death while in case injured's claim a sum of Rs. 2,000/-

was directed to be paid. The judgment was challenged in appeal before

the Division Bench of the High Court of Andhra Pradesh at Hyderabad

questioning the correctness of the view regarding non-liability of the

insurer. The High court by the impugned judgment held that the insurer

was liable to indemnify the award.

In support of the appeal learned counsel for the appellant\026

insurer submitted that the High Court has lost sight of the fact that

plying the vehicle without requisite permit is a breach of a specific

condition of the policy and, therefore, the insurer had no liability.

It was pointed out that Section 149 of the Act deals with the defences

available to the insurer.

Reference was also made to Section 66 of the Act relating to the

necessity for permits. The High Court's view that since the vehicle was

subject-matter of insurance and the policy was in operation; insurer's

liability is really of no consequence. The defence available to the

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insurer is when the policy subsists and stress of the High Court on

that is really beside the point.

Per contra, learned counsel for the respondent-claimants

submitted that in one case at hand two young children of the deceased

were the beneficiary of the award. The widow of the deceased, during

the pendency of the appeal before this Court, has also expired. In one

of the cases, old parents of the deceased are the claimants. In this

view of the matter, considering the small amounts awarded, this is not

a fit case for interference.

Section 149(2)(a) (i) relates to a vehicle not covered by a

permit to ply for hire or reward. Section 149(2) reads as follows :

" No sum shall be payable by an insurer under sub-

section (1) 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 Claims Tribunal of the

bringing of the proceedings, or in respect of such judgment

or award so long as execution is stayed thereon 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, being one of the following

conditions, namely:-

(i) a condition excluding the use of the

vehicle \026

(a) 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

(b) for organized 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) 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 who has been

disqualified for holding or obtaining a driving

licence during the period of dis-qualification; or

(iii) a condition excluding liability for

injury caused or contributed to by conditions of

war, civil war, riot or civil commotion; or

(b) 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."

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Section 66 of the Act is also relevant. Same reads as follows:

"66. Necessity for permits \026 (1) No owner of a motor

vehicle shall use or permit the use of the vehicle as

a transport vehicle in any public place whether or not

such vehicle is actually carrying any passengers or

goods save in accordance with the conditions of a

permit granted or countersigned by a Regional or State

Transport Authority or any prescribed authority

authorizing him the use of the vehicle in that place

in the manner in which the vehicle is being used:

Provided that a stage carriage permit shall,

subject to any conditions that may be specified in the

permit, authorize the use of the vehicle as a contract

carriage:

Provided further that a stage carriage permit

may, subject to any conditions that may be specified

in the permit, authorize the use of the vehicle as a

goods carriage either when carrying passengers or not:

Provided also that a goods carriage permit shall,

subject to any conditions that may be specified in the

permit, authorize the holder to use the vehicle for

the carriage of goods for or in connection with a

trade or business carried on by him.

(2) The holder of a goods carriage permit may use the

vehicle, for drawing of any trailer or semi-trailer

not owned by him, subject to such conditions as may be

prescribed:

Provided that the holder of a permit of any

articulated vehicle may use the prime-mover of that

articulated vehicle for any other semi-trailer.

(3) The provisions of sub-section (1) shall not apply

\026

(a) to any transport vehicle owned by the Central

Government or a State Government and used for

Government purposes unconnected with any commercial

enterprise;

(b) to any transport vehicle owned by a local

authority or by a person acting under contract with a

local authority and used solely for road cleansing,

road watering or conservancy purposes;

(c) to any transport vehicle used solely for police,

fire brigade or ambulance purposes;

(d) to any transport vehicle used solely for the

conveyance of corpses and the mourners accompanying

the corpses;

(e) to any transport vehicle used for towing a

disable vehicle or for removing goods from a disabled

vehicle to a place of safety;

(f) to any transport vehicle used for any other public

purpose as may be prescribed by the State Government

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in this behalf;

(g) to any transport vehicle used by a person who

manufactures or deals in motor vehicles or builds

bodies for attachment to chassis, solely for such

purposes and in accordance with such conditions as the

Central Government may, by notification in the

Official Gazette, specify in this behalf;

(h)omitted

(i) to any goods vehicle, the gross vehicle weight of

which does not exceed 3,000 kilograms;

(j) subject to such conditions as the Central

Government may, by notification in the Official

Gazette, specify, to any transport vehicle purchased

in one State and proceeding to a place, situated in

that State or in any other State, without carrying any

passenger or goods;

(k) to any transport vehicle which has been

temporarily registered under section 43 while

proceeding empty to any place for the purpose of

registration of the vehicle;

(l) omitted.

(m) to any transport vehicle which, owing to flood,

earthquake or any other natural calamity, obstruction

on road, or unforeseen circumstances, is required to

be diverted through any other route, whether within or

outside the State, with a view to enabling it to reach

its destination;

(n) to any transport vehicle used for such purposes

as the Central or State Government may, by order,

specify;

(o) to any transport vehicle which is subject to a

hire-purchase, lease or hypothecation agreement and

which owing to the default of the owner has been taken

possession of by or on behalf of, the person with whom

the owner has entered into such agreement, to enable

such motor vehicle to reach its destination; or

(p) to any transport vehicle while proceeding empty

to any place for purpose of repair.

(4) Subject to the provisions of sub-section (3),

sub-section (1) shall, if the State Government by rule

made under section 96 so prescribes, apply to any

motor vehicle adapted to carry more than nine persons

excluding the driver."

In New India Assurance Co. Ltd. v. Asha Rani and Ors. (2003 (2)

SCC 223) it was observed as follows:

"We may consider the matter from another angle.

Section 149(2) of the 1988 Act enables the insurers to

raise defences against the claim of the claimants. In

terms of clause (c) of sub-section (2) of section 149

of the Act one of the defences which is available to

the insurer is that the vehicle in question has been

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used for a purpose not allowed by the permit under

which the vehicle was used. Such a statutory defence

available to the insurer would be obliterated in view

of the decision of this court in Satpal Singh's case

(2000 (1) SCC 237)."

Similarly, in National Insurance Co. Ltd., Chandigarh v.

Nicolletta Rohtagi and Ors. (2002 (7) SCC 456), the scope of Section

149 (2) of the Act was elaborated. It was, inter alia, observed as

follows:

"To answer the question, it is necessary to find out

on what grounds the insurer is entitled to

defend/contest against a claim by an injured or

dependants of the victims of a motor vehicle

accident. Under Section 96(2) of the 1939 Act which

corresponds to Section 149(2) of the 1988 Act, an

insurance company has no right to be a party to an

action by the injured person or dependants of the

deceased against the insured. However, the said

provision gives the insurer the right to be made a

party to the case and to defend it. It is,

therefore, obvious that the said right is a creature

of the statute and its content depends on the

provisions of the statute. After the insurer has

been made a party to a case or claim, the question

arises, what are the defences available to it under

the statute ? The language employed in enacting sub-

section (2) of Section 149 appears to be plain and

simple and there is no ambiguity in it. It shows

that when an insurer is impleaded and has been given

notice of the case, he is entitled to defend the

action on grounds enumerated in the sub-section,

namely, sub-section (2) of Section 149 of the 1988

Act, and no other ground is available to him. The

insurer is not allowed to contest the claim of the

injured or heirs of the deceased on other ground

which is available to an insured or breach of any

other conditions of the policy which do not find

place in sub-section (2) of Section 149 of the 1988

Act. If an insurer is permitted to contest the claim

on other grounds it would mean adding more grounds

of contest to the insurer than what the statute has

specifically provided for.

Sub-section (7) of Section 149 of the 1988 Act

clearly indicates in what manner sub-section (2) of

Section 149 has to be interpreted. Sub-section (7)

of Section 149 provides that no insurer to whom the

notice referred to in sub-section (2) or sub-section

(3) has been given shall be entitled to avoid his

liability to any person entitled to the benefit of

any such judgment or award as is referred to in sub-

section (1) or in such judgment as is referred to in

sub-section (3) otherwise than in the manner

provided for in sub-section (2) or in the

corresponding law of the reciprocating country, as

the case may be. The expression "manner" employed in

sub-section (7) of Section 149 is very relevant

which means an insurer can avoid its liability only

in accordance with what has been provided for in

sub-section (2) of Section 149. It, therefore, shows

that the insurer can avoid its liability only on the

statutory defences expressly provided in sub-section

(2) of Section 149 of the 1988 Act. We are,

therefore, of the view that an insurer cannot avoid

its liability on any other grounds except those

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mentioned in sub-section (2) of Section 149 of the

1988 Act."

As was observed in the said case the statutory defences which are

available to the insurer to contest the claim are confined to those

provided in sub-section (2) of Section 149.

High Court was of the view that since there was no permit, the

question of violation of any condition thereof does not arise. The

view is clearly fallacious. A person without permit to ply a vehicle

cannot be placed at a better pedestal vis-`-vis one who has a permit,

but has violated any condition thereof. Plying of a vehicle without a

permit is an infraction. Therefore, in terms of Section 149(2) defence

is available to the insurer on that aspect. The acceptability of the

stand is a matter of adjudication. The question of policy being

operative had no relevance for the issue regarding liability of

insurer. High Court was, therefore, not justified in holding the

insurer liable.

The residual question is what would be the appropriate direction.

Considering the beneficial object of the Act, it would be proper for

the insurer to satisfy the award, though in law it has no liability. In

some cases the insurer has been given the option and liberty to recover

the amount from the insured. For the purpose of recovering the amount

paid from the owner, 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

claimants, owner of the offending vehicle shall furnish security for

the entire 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

owner of the vehicle shall make payment to the insurer. In case there

is any 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 i.e. the

insured. In the instant case considering the quantum involved we leave

it to the discretion of the insurer to decide whether it would take

steps for recovery of the amount from the insured.

The appeals are disposed of with the above observation. There

will be no order as to costs.