http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 12

CASE NO.:

Appeal (civil) 5825 of 2006

PETITIONER:

THE ORIENTAL INSURANCE COMPANY LIMITED

RESPONDENT:

MEENA VARIYAL & ORS

DATE OF JUDGMENT: 02/04/2007

BENCH:

C.K. THAKKER & P.K. BALASUBRAMANYAN

JUDGMENT:

J U D G M E N T

P.K. BALASUBRAMANYAN, J.

1. One Suresh Chandra Variyal was employed as a

Regional Manager in M/s Apace Savings and Mutual Benefits

(India) Ltd., the owner of a motor vehicle, respondent No.3

herein. Variyal was provided with a car by the employer. The

vehicle was insured with the appellant company in terms of

the Motor Vehicles Act, 1988. There was no special contract.

On 14.6.1999, the vehicle met with an accident. Suresh

Chandra Variyal, died. The widow and daughter of Suresh

Chandra Variyal, filed a claim petition under Section 166 of

the Motor Vehicles Act, 1988, before the Motor Accidents

Claims Tribunal, Nainital. Therein, they claimed

compensation to the tune of Rs.15 lakhs. According to the

claim, the deceased was driving along with his 'companion'

Mahmood Hasan after completing his work for the employer.

At about 11.30 pm the car collided with a tree due to the rash

and negligent driving of the driver. The car was being driven

by Mahmood Hasan at the time of the accident. The deceased

was an occupant of the car. The car was being used for the

business and for the benefit of the employer of the deceased at

the time of the accident. The deceased was earning Rs.

9,000/- per month. He had a bright career ahead. Mahmood

Hasan had lodged a first information report the same day

(reiterated in the counter affidavit filed in this Court) giving

wrong facts to escape from any prosecution. It was not

specified in the application as to what was the wrong fact or

what were the wrong facts mentioned in the complaint filed by

Mahmood Hasan. The claimants as dependants were entitled

to compensation as claimed.

2. The claim was filed against the employer, the owner

of the motor vehicle and against the insurance company.

Mahmood Hasan, who was allegedly driving the car and that

too negligently, at the time of the accident, was not impleaded.

No reason was given in the claim for his not being impleaded.

The owner of the car, the company that employed the

deceased, did not appear and did not file any written

statement. The insurance company filed a written statement.

It pleaded that the driver and the owner of the vehicle have

colluded and the alleged driver of the car had not been

impleaded. As a matter of fact, the deceased himself was

driving the vehicle. Hence he was not entitled to claim any

compensation since the accident occurred on account of his

own negligence. The insurance company had no liability.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 12

The compensation claimed was exorbitant and the claim was

liable to be dismissed.

3. In support of the claim, the wife of Variyal was

examined as P.W.1 and another person, who was allegedly

travelling in the car when it met with the accident, was

examined as P.W. 2. P.W. 1 asserted that the vehicle was

being driven at the time of the accident by Mahmood Hasan

and her husband was travelling in the car. This was sought to

be supported by P.W. 2 who claimed that he was also

travelling in the same car at the time of the accident. He gave

evidence that Variyal was employed as a Regional Manager

with the owner of the car, M/s Apace Savings and Mutual

Benefits (India) Ltd. P.W. 2 also gave evidence that sometimes

Variyal himself used to drive the vehicle but Mahmood Hasan

usually drove the car. Mahmood Hasan had lodged a First

Information Report at 4.40 p.m. on the day of the accident.

Therein, Mahmood Hasan had stated that Variyal was driving

the car at the time of the accident.

4. No independent evidence was adduced to show what

exactly was the salary that was being earned by Variyal from

his employer. The employer was a limited liability company

and in the normal course, should have been maintaining the

relevant records showing the salary paid to a Regional

Manager like Variyal. No attempt was made to get them

produced. The widow contented herself by asserting in her

oral evidence that Variyal was earning a salary of Rs. 9,000/-

per month. The Motor Accident Claims Tribunal held that the

evidence disclosed that Variyal was driving the vehicle since

what was more acceptable was the first version regarding the

accident and not the oral assertions of P.Ws. 1 and 2 in

support of the claim. It also held that Variyal was not holding

a valid driving licence when he drove the car. Purporting to

accept the interested, unsupported version of P.W. 1 that the

income of her husband was Rs. 9,000/- per month, the

Tribunal calculated the dependency at Rs. 6,000/- per month

and applying the multiplier of 10, arrived at the compensation

payable as Rs. 7,20,000/-. The Tribunal held that the

claimants were entitled to receive the amount from the owner

of the vehicle, the employer, but the insurance company was

not liable, since the vehicle was being driven by the deceased

himself who was an employee of the owner of the car and the

policy of insurance did not cover such an employee. Thus, the

claim was ordered directing the owner of the car to pay the

claimant a sum of Rs. 7,20,000/- with interest thereon.

5. The claimants filed an appeal before the High Court.

The insurance company, which had been exonerated by the

Tribunal, alone resisted the appeal. The owner of the vehicle

kept away. The claimants, the appellants before the High

Court, contended that the Tribunal was in error in finding that

the insurance company was not liable and in not granting

them a decree against the insurance company. The insurance

company pointed out that the deceased was not a third party

covered by the insurance policy, was an employee of the owner

of the vehicle and was not covered by the policy. Even

otherwise, he was driving the car himself as found by the

Tribunal and since the accident was caused by his own

negligence, the insurance company was not liable.

6. The only argument attempted on behalf of the

claimants, the appellants in the High Court, was that in the

light of the decision of this Court in National Insurance Co.

Ltd. Vs. Swaran Singh & Ors. [(2004) 3 S.C.C. 297], the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 12

insurance company was liable to pay the amount awarded

even if there was breach of a policy condition and if there was

a dispute between the insured and the insurer, it had to be

fought elsewhere and they cannot be denied the benefit of the

insurance. The insurance company pointed out that the ratio

in Swaran Singh (supra) had no application to the case and in

the face of the finding that the deceased was himself driving

the vehicle belonging to his employer, the insurance company

had no liability. There was no special contract and since it was

only a policy in terms of the Motor Vehicles Act, the insurance

company cannot be asked to pay the amount awarded which

was even otherwise not supported by any admissible or

acceptable evidence. The High Court, stating that they had in

so many cases held, in view of the ratio in Swaran Singh

(supra), that it is not open to the insurance company to avoid

liability under the Act, simply directed the insurance company

to pay the amount as ordered by the Tribunal, leaving it to the

insurance company to take recourse to recover the amount

from the insured in accordance with the directions of this

Court in Swaran Singh (supra).

7. We must say that one would have expected the High

Court to apply its mind to the question arising, in a better

manner and to specifically answer the question that arose for

decision in the case. For instance, we may observe that it has

not reversed the finding of the Tribunal that the deceased was

himself driving the vehicle. Then, what was the position? The

position was that a Regional Manager of the Company, which

was owner of the vehicle, was himself driving the vehicle of the

Company and during the course of it, he died in an accident,

whether the accident occurred due to his negligence or

otherwise. It appears to us that mere going by some decision

or other, without appreciating the facts in a given case, in the

light of the law, if any, declared by this court, does not lead a

court or Tribunal to a correct conclusion in the normal course.

8. On behalf of the insurance company, the appellant,

it is contended that the policy was only one in terms of the

Motor Vehicles Act, 1988 and the policy did not cover the

employee of the owner, the insured, who was driving the

vehicle while attending to the business of the employer

company. The deceased was not "a third party" in terms of the

policy or in terms of the Act. The Act did not provide for

statutory coverage of such a person. This would be the

position even if the deceased was only travelling in the car in

his capacity as a Regional Manager of the owner \026 Company

and the vehicle was being driven by Mahmood Hasan as

claimed. Since the High Court has not interfered with the

finding of the Tribunal that the deceased was himself driving

the car at the time of the accident and that he did not have a

valid licence to drive a vehicle, there was absolutely no

question of the insurance company being made liable under

any principle of law. It was also submitted that without

impleading Mahmood Hasan who was allegedly driving the car,

the claim ought not to have been entertained, especially since

there was controversy as to whether the car was being driven

by Mahmood Hasan or by the deceased as sought to be

projected by the claimants. The claimants were obliged to

prove the negligence of the driver and the principles of general

law in that regard, have not been jettisoned by the Motor

Vehicles Act. On the other hand, the law expounded by this

Court earlier had been accepted by the Legislature by enacting

Section 163A of the Act. Thus, this was a case where High

Court grossly erred in directing the insurance company to pay

the compensation decreed by the Tribunal, which in itself was

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 12

a figure unsupported by any legal evidence and in purporting

to apply the ratio of Swaran Singh (supra) to compel the

insurance company to pay the amount awarded and then to

have recourse to the insured. The learned counsel for the

claimant - respondent on the other hand submitted that the

vehicle, at the relevant time, was being driven by Mahmood

Hasan and the Tribunal was wrong in entering a finding that

the deceased himself was driving the vehicle in the light of the

evidence of P.Ws. 1 and 2. The burden was on the insurance

company, on the scheme of the Act, to show that it had no

liability and in that context to show that the deceased himself

was driving the vehicle and not Mahmood Hasan. Learned

counsel further submitted that this Court in Swaran Singh

(supra) has laid down the law and that principle applies in all

cases involving an insurance company and a policy issued by

the Company in terms of the Act and whenever there is an

award against the insured, the insurer is obliged to satisfy the

award and have recourse to the insured even if the insurance

company was really not liable under the policy. He therefore

submitted that the High Court was justified in directing the

insurance company to pay the compensation. He urged that

Chapter XI of the Act contained beneficent provisions to

protect the victims and the relevant sections should not be

construed restrictively.

9. Before we proceed to consider the main aspect

arising for decision in this Appeal, we would like to make

certain general observations. It may be true that the Motor

Vehicles Act, insofar as it relates to claims for compensation

arising out of accidents, is a beneficent piece of legislation. It

may also be true that subject to the rules made in that behalf,

the Tribunal may follow a summary procedure in dealing with

a claim. That does not mean that a Tribunal approached with

a claim for compensation under the Act should ignore all basic

principles of law in determining the claim for compensation.

Ordinarily, a contract of insurance is a contract of indemnity.

When a car belonging to an owner is insured with the

insurance company and it is being driven by a driver employed

by the insured, when it meets with an accident, the primary

liability under law for payment of compensation is that of the

driver. Once the driver is liable, the owner of the vehicle

becomes vicariously liable for payment of compensation. It is

this vicarious liability of the owner that is indemnified by the

insurance company. A third party for whose benefit the

insurance is taken, is therefore entitled to show, when he

moves under Section 166 of the Motor Vehicles Act, that the

driver was negligent in driving the vehicle resulting in the

accident; that the owner was vicariously liable and that the

insurance company was bound to indemnify the owner and

consequently, satisfy the award made. Therefore, under

general principles, one would expect the driver to be

impleaded before an adjudication is claimed under Section

166 of the Act as to whether a claimant before the Tribunal is

entitled to compensation for an accident that has occurred

due to alleged negligence of the driver. Why should not a

Tribunal insist on the driver of the vehicle being impleaded

when a claim is being filed? As we have noticed, the relevant

provisions of the Act are not intended to jettison all principles

of law relating to a claim for compensation which is still based

on a tortious liability. The Tribunal ought to have, in the case

on hand, directed the claimant to implead Mahmood Hasan

who was allegedly driving the vehicle at the time of the

accident. Here, there was also controversy whether it was

Mahmood Hasan who was driving the vehicle or it was the

deceased himself. Surely, such a question could have been

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 12

decided only in the presence of Mahmood Hasan who would

have been principally liable for any compensation that might

be decreed in case he was driving the vehicle. Secondly, the

deceased was employed in a limited company. It was

necessary for the claimants to establish what was the monthly

income and what was the dependency on the basis of which

the compensation could be adjudged as payable. Should not

any Tribunal trained in law ask the claimants to produce

evidence in support of the monthly salary or income earned by

the deceased from his employer Company? Is there anything

in the Motor Vehicles Act which stands in the way of the

Tribunal asking for the best evidence, acceptable evidence?

We think not. Here again, the position that the Motor Vehicles

Act vis-`-vis claim for compensation arising out of an accident

is a beneficent piece of legislation, cannot lead a Tribunal

trained in law to forget all basic principles of establishing

liability and establishing the quantum of compensation

payable. The Tribunal, in this case, has chosen to merely go

by the oral evidence of the widow when without any difficulty

the claimants could have got the employer \026 company to

produce the relevant documents to show the income that was

being derived by the deceased from his employment. Of

course, in this case, the above two aspects become relevant

only if we find the insurance company liable. If we find that

only the owner of the vehicle, the employer of the deceased

was liable, there will be no occasion to further consider these

aspects since the owner has acquiesced in the award passed

by the Tribunal against it.

10. Chapter XI of the Act bears a heading, "Insurance of

Motor Vehicles against third party risks". The definition of

"third party" is an inclusive one since Section 145(g) only

indicates that "third party" includes the Government. It is

Section 146 that makes it obligatory for an insurance to be

taken out before a motor vehicle could be used on the road.

The heading of that Section itself is "Necessity for insurance

against third party risk". No doubt, the marginal heading may

not be conclusive. It is Section 147 that sets out the

requirement of policies and limits of liability. It is provided

therein that in order to comply with the requirements of

Chapter XI of the Act, a policy of insurance must be a policy

which is issued by an authorised insurer; or which insures the

person or classes of persons specified in the policy to the

extent specified in sub-section (2) against any liability which

may be incurred by the owner in respect of the death of or

bodily injury or damage to any property of a third party

caused by or arising out of the use of the vehicle in a public

place. With effect from 14.11.1994, injury to the owner of

goods or his authorised representative carried in the vehicle

was also added. The policy had to cover 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. Then,

as per the proviso, the policy shall not be required to cover

liability in respect of the death, arising out of and in the

course of his employment, of the employee of a person insured

by the policy or in respect of bodily injury sustained by such

an employee arising out of and in the course of his

employment, other than a liability arising under the

Workmen's Compensation Act, 1923 in respect of the death of,

or bodily injury to, an employee engaged in driving the vehicle,

or who is a conductor, if it is a public service vehicle or an

employee being carried in a goods vehicle or to cover any

contractual liability. Sub-section (2) only sets down the limits

of the policy. As we understand Section 147 (1) of the Act, an

insurance policy thereunder need not cover the liability in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 12

respect of death or injury arising out of and in the course of

the employment of an employee of the person insured by the

policy, unless it be a liability arising under the Workmen's

Compensation Act, 1923 in respect of a driver, also the

conductor, in the case of a public service vehicle, and the one

carried in the vehicle as owner of the goods or his

representative, if it is a goods vehicle. It is provided that the

policy also shall not be required to cover any contractual

liability. Uninfluenced by authorities, we find no difficulty in

understanding this provision as one providing that the policy

must insure an owner against any liability to a third party

caused by or arising out of the use of the vehicle in a public

place, and against death or bodily injury to any passenger of a

public service vehicle caused by or arising out of the use of

vehicle in a public place. The proviso clarifies that the policy

shall not be required to cover an employee of the insured in

respect of bodily injury or death arising out of and in the

course of his employment. Then, an exception is provided to

the last forgoing to the effect that the policy must cover a

liability arising under the Workmen's Compensation Act, 1923

in respect of the death or bodily injury to an employee who is

engaged in driving the vehicle or who serves as a conductor in

a public service vehicle or an employee who travels in the

vehicle of the employer carrying goods if it is a goods carriage.

Section 149(1), which casts an obligation on an insurer to

satisfy an award, also speaks only of award in respect of such

liability as is required to be covered by a policy under clause

(h) of sub-section (1) of Section 147, (being a liability covered

by the terms of the policy). This provision cannot therefore be

used to enlarge the liability if it does not exist in terms of

Section 147 of the Act.

11. The object of the insistence on insurance under

Chapter XI of the Act thus seems to be to compulsorily cover

the liability relating to their person or properties of third

parties and in respect of employees of the insured employer,

the liability that may arise under the Workmen's

Compensation Act, 1923 in respect of the driver, the

conductor and the one carried in a goods vehicle carrying

goods. On this plain understanding of Section 147, we find it

difficulty to hold that the insurance company, in the case on

hand, was liable to indemnify the owner, the employer

Company, the insured, in respect of the death of one of its

employees, who according to the claim, was not the driver. Be

it noted that the liability is not one arising under the

Workmen's Compensation Act, 1923 and it is doubtful, on the

case put forward by the claimant, whether the deceased could

be understood as a workman coming within the Workmen's

Compensation Act, 1923. Therefore, on a plain reading of

Section 147 of the Act, it appears to be clear that the

insurance company is not liable to indemnify the insured in

the case on hand.

12. The argument that the proviso does not keep out

employees from coverage though the claims under the

Workmen's Compensation Act are specified, cannot be

accepted on the plain language of the proviso. The proviso

enacts an exemption and carves out an exception to that

exemption. The suggested interpretation would result in

ignoring the effect of the language employed by the proviso,

exempting the owner from covering his employees under

insurance except in cases where the liability in respect of them

is, one arising under the Workmen's Compensation Act.

Obviously, as determined by that Tribunal.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 12

13. We shall now examine the decision in Swaran

Singh (supra) on which practically the whole of the arguments

on behalf of the claimants was rested. On examining the

facts, it is found that, that was a case which related to a claim

by a third party. In claims by a third party, there cannot be

much doubt that once the liability of the owner is found, the

insurance company is liable to indemnify the owner, subject of

course, to any defence that may be available to it under

Section 149(2) of the Act. In a case where the liability is

satisfied by the insurance company in the first instance, it

may have recourse to the owner in respect of a claim available

in that behalf. Swaran Singh (supra) was a case where the

insurance company raised a defence that the owner had

permitted the vehicle to be driven by a driver who really had

no licence and the driving licence produced by him was a fake

one. Their Lordships discussed the position and held

ultimately that a defence under Section 149(2)(a)(ii) of the Act

was available to an insurer when a claim is filed either under

Section 163A or under Section 166 of the Act. The breach of

a policy condition has to be proved to have been committed by

the insured for avoiding liability by the insurer. Mere absence

of or production of fake or invalid driving licence or

disqualification of the driver for driving at the relevant time,

are not in themselves defences available to the insurer against

either the insured or the third party. The insurance company

to avoid liability, must not only establish the available defence

raised in the concerned proceeding but must also establish

breach on the part of the owner of the vehicle for which the

burden of proof would rest with the insurance company.

Whether such a burden had been discharged, would depend

upon the facts and circumstances of each case. Even when the

insurer, is able to prove breach on the part of the insured

concerning a policy condition, the insurer would not be

allowed to avoid its liability towards the insured unless the

said breach of condition is so fundamental as to be found to

have contributed to the cause of the accident. The question

whether the owner has taken reasonable care to find out

whether the driving licence produced by the driver was fake or

not, will have to be determined in each case. If the vehicle at

the time of the accident was driven by a person having a

learner's licence, the insurance company would be liable to

satisfy the award. The amount that may be awarded to the

insurance company against the insurer in an appropriate case

could be recovered even by way of the enforcement of the very

award. The insurance company had to satisfy the claim of the

insured in cases where a defence under Section 149(2) has

been established by the Company in terms of a fake licence or

the learner's licence. Their Lordships distinguished Malla

Prakasarao Vs. Malla Janaki & Ors. [(2004) 3 S.C.C. 343]

wherein it was held that the insurance company had no

liability to pay any compensation where an accident resulted

by a vehicle being driven by a driver without a driving licence.

In other words, a distinction between a case of no licence and

a case of licence which turned out to be fake or deficient was

drawn and the liability was held to stand on different footings.

14. It is difficult to apply the ratio of this decision to a

case not involving a third party. The whole protection provided

by Chapter XI of the Act is against third party risk. Therefore,

in a case where a person is not a third party within the

meaning of the Act, the insurance company cannot be made

automatically liable merely by resorting to the Swaran Singh

(supra) ratio. This appears to be the position. This position

was expounded recently by this Court in National Insurance

Co. Ltd. Vs. Laxmi Narain Dhut [2007 (4) SCALE 36]. This

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 12

Court after referring to Swaran Singh (supra) and discussing

the law summed up the position thus:

"In view of the above analysis the following

situations emerge:

1. The decision in Swaran Singh's case

(supra) has no application to cases

other than third party risks.

2. Where originally the licence was a

fake one, renewal cannot cure the

inherent fatality.

3. In case of third party risks the

insurer has to indemnify the

amount and if so advised, to recover

the same from the insured.

4. The concept of purposive

interpretation has no application to

cases relatable to Section 149 of the

Act.

The High Courts/Commissions shall now

consider the mater afresh in the light of the

position in law as delineated above."

We are in respectful agreement with the above view.

15. In New India Assurance Co. Ltd. Vs. Asha Rani

and others [(2003) 2 S.C.C 223) this Court had occasion to

consider the scope of the expression "any person" occurring in

Section 147 of the Act. This Court held:

"that the meaning of the words "any person"

must also be attributed having regard to the

context in which they have been used i.e. " a

third party". Keeping in view the provisions of

the 1988 Act we are of the opinion that as the

provisions thereof did not enjoin any statutory

liability on the owner of a vehicle to get his

vehicle insured for any passenger travelling in

a goods vehicle, the insurers would not be

liable therefor."

In other words, this Court clearly held that the apparently

wide words "any person" are qualified by the setting in which

they occur and that "any person" is to be understood as a

third party.

16. In United India Insurance Co. Ltd., Shimla Vs.

Tilak Singh & Ors. [(2006) 4 S.C.C. 404 ], this Court made a

survey of the prior decisions and discountenanced an attempt

to confine the ratio of Asha Rani (supra). This Court stated

that although the observations in Asha Rani were in

connection with carrying passengers in a goods vehicle, the

same would apply with equal force also to gratuitous

passengers in any other vehicle. This Court also noticed that

the decision to the contrary in New India Assurance Co. Vs.

Satpal Singh [(2000) 1 S.C.C. 237] was specifically overruled

in Asha Rani's case (supra). In other words, it was re-

emphasised that a policy in terms of Section 147 of the Act is

not intended to cover persons other than third parties.

17. The Court of Appeal in Cooper vs. Motor Insurers'

Bureau (1985 (1) Queen's Bench Division 575) considered the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 12

interpretation of Section 143 and 145 of the Road Traffic Act,

1972 corresponding to Section 146 and Section 147 of the Act.

The Court of Appeal held:

"that Section 143(1) of the Act of the 1972

imposed an obligation on the owner to insure

against the risk of injury or death to third

parties resulting from the use by him or any

other person of his vehicle on the road; that

"third party risks" in section 143(1) did not

include risks to the driver of the vehicle at the

relevant time so that "any person" in section

145(3)(a) was therefore restricted to persons

other than the driver of the vehicle and its

owner; and that, accordingly, since the liability

of the owner to the plaintiff was not one that

was required to be covered by a policy of

insurance by the Act of 1972, the Motor

Insurers' Bureau were not liable under the

terms of the agreement to compensate the

plaintiff in the sum of the unsatisfied

judgment."

18. In Halsbury's Laws of England, Fourth Edition, in

paragraph 761, the position as regards 'employees' is stated as

follows:

"A policy is not required to cover liability in

respect of the death of or bodily injury

sustained by a person in the employment of a

person insured by the policy where the death

or injury arises out of and in the course of that

employment. This exclusion is framed in the

language of the Workmen's Compensation Acts

and is presumably intended to reflect the well-

established distinction in the insurance world

between public liability risks and employers'

liability risks. The distinctions which are

involved are very finely drawn."

19. In New India Assurance Co. Ltd. Vs. Rula & Ors.

[(2000) 3 S.C.C. 195], this Court postulated that the contract

of insurance in respect of motor vehicles has to be construed

in the light of Sections 146(1),147(5) and 149(1) of the Motor

Vehicles Act, 1988. The manifest object of Section 146(1),

which contains a prohibition on the use of motor vehicles

without an insurance policy having been taken in accordance

with Chapter XI of the Act is to ensure that the third party,

who suffers injuries due to the use of the motor vehicle, may

be able to get damages from the owner of the vehicle and

recoverability of the damages may not depend on the financial

condition or solvency of the driver of the vehicle who had

caused the injuries. Thus, any contract of insurance under

Chapter XI of the Motor Vehicles Act, 1988 contemplates a

third party who is not a signatory or a party to the contract of

insurance but is, nevertheless, protected by such contract.

That this was the object was reiterated in New India

Assurance Co. Shimla Vs. Kamla & Ors. [(2001) 4 S.C.C.

342], wherein it was stated that the raison d'etre for the

legislature making it prohibitory for motor vehicles being used

in public places without covering third-party risks by a policy

of insurance is to protect the members of the community who

become sufferers on account of accidents arising from the use

of motor vehicles. The object of Chapter XI has thus always

been recognised as one intended to protect third parties as

understood in the context of the Act unless of course there is a

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 12

special contract in respect of protection to others.

20. We are thus satisfied that based on the ratio in

Swaran Singh (supra), the insurance company cannot be

made liable in the case on hand to pay the compensation first

and to recover it from the insured, the owner of the vehicle.

The deceased being an employee not covered by the

Workmen's Compensation Act, of the insured, the owner of the

vehicle, has not to be covered compulsorily under the Act and

only by entering into of a special contract by the insured with

the insurer could such a person be brought under coverage.

There is no case that there is any special contract in that

behalf in this case.

21. It was argued by learned counsel for the appellant

that since on the finding that the deceased was himself driving

the vehicle at the time of the accident, the accident arose due

to the negligence of the deceased himself and hence the

insurer is not liable for the compensation. Even if the case of

the claimant that the car was driven by Mahmood Hasan was

true, then also, the claimant had to establish the negligence of

the driver before the insured could be asked to indemnify the

insured. The decision in Minu B. Mehta & Anr. Vs.

Balkrishna Ramchandra Nayan & Anr. [(1977) 2 S.C.R. 886],

of a three Judge Bench of this Court was relied on in support.

22. In that decision, this Court considered the question

whether in a claim for compensation under the Motor Vehicles

Act, 1939, proof of negligence was essential to support a claim

for compensation. On the facts in that case, their Lordships

found that the appeal was liable to be dismissed subject to

certain directions issued therein. But their Lordships, in the

light of the fact that the High Court had discussed the law on

the question and it was of some importance, felt that it was

necessary to state the position in law. Noticing that the

liability of the owner of the car to compensate the victim in a

car accident due to negligent driving of his servant is based on

the law of tort, the court discussed the scheme of the Act of

1939 and the law on the question. Regarding the view of the

High Court that it was not necessary to prove negligence, the

court held:

"The reasoning of the two learned judges is

unacceptable as it is opposed to basic

principles of the owner's liability for negligence

of his servant and is based on a complete

misreading of the provisions of Chapter VIII of

the Act. The High Court's zeal for what it

considered to be protection of public good has

misled it into adopting a course which is

nothing short of legislation."

Their Lordships also noticed that proof of negligence remained

the lynch pin to recover compensation. Their Lordships

concluded by saying,

"We conclude by stating that the view of the

learned Judges of the High Court has no

support in law and hold that proof of

negligence is necessary before the owner or the

insurance company could be held to be liable

for the payment of compensation in a motor

accident claim case."

23. Learned counsel for the respondent contended that

there was no obligation on the claimant to prove negligence on

the part of the driver. Learned counsel relied on Gujarat

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 12

State Road Transport Corporation, Ahmedabad vs.

Ramanbhai Prabhatbhai and another (1987 (3) SCC 234) in

support. In that decision, this Court clarified that the

observations in Minu B. Mehta's case (supra) are in the

nature of obiter dicta. But, this Court only proceeded to

notice that departures had been made from the law of strict

liability and the Fatal Accidents Act by introduction of Chapter

VIIA of the 1939 Act and the introduction of Section 92A

providing for compensation and the expansion of the provision

as to who could make a claim, noticing that the application

under Section 110A of the Act had to be made on behalf of or

for the benefit of all the legal representatives of the deceased.

This Court has not stated that on a claim based on negligence

there is no obligation to establish negligence. This Court was

dealing with no-fault liability and the departure made from the

Fatal Accidents Act and the theory of strict liability in the

scheme of the Act of 1939 as amended. This Court did not

have the occasion to construe a provision like Section 163A of

the Act of 1988 providing for compensation without proof of

negligence in contradistinction to Section 166 of the Act. We

may notice that Minu B. Mehta's case was decided by three

learned Judges and the Gujarat State Road Transport

Corporation case was decided only by two learned Judges.

An obiter dictum of this Court may be binding only on the

High Courts in the absence of a direct pronouncement on that

question elsewhere by this Court. But as far as this Court is

concerned, though not binding, it does have clear persuasive

authority. On a careful understanding of the decision in

Gujarat State Road Transport Corporation (supra) we

cannot understand it as having held that in all claims under

the Act proof of negligence as the basis of a claim is jettisoned

by the scheme of the Act. In the context of Sections 166 and

163A of the Act of 1988, we are persuaded to think that the so

called obiter observations in Minu B. Mehta's case (supra)

govern a claim under Section 166 of the Act and they are

inapplicable only when a claim is made under Section 163A of

the Act. Obviously, it is for the claimant to choose under

which provision he should approach the Tribunal and if he

chooses to approach the Tribunal under Section 166 of the

Act, we cannot see why the principle stated in Minu B.

Mehta's case should not apply to him. We are, therefore, not

in a position to accept the argument of learned counsel for the

respondents that the observations in Minu B. Mehta's case

deserve to be ignored.

24. We think that the law laid down in Minu B. Mehta

& Anr. Vs. Balkrishna Ramchandra Nayan & Anr. (supra)

was accepted by the legislature while enacting the Motor

Vehicles Act, 1988 by introducing Section 163A of the Act

providing for payment of compensation notwithstanding

anything contained in the Act or in any other law for the time

being in force that the owner of a motor vehicle or the

authorised insurer shall be liable to pay in the case of death or

permanent disablement due to accident arising out of the use

of the motor vehicle, compensation, as indicated in the Second

Schedule, to the legal heirs or the victim, as the case may be,

and in a claim made under sub-section (1) of Section 163A of

the Act, the claimant shall not be required to plead or

establish that the death or permanent disablement in respect

of which the claim has been made was due to any wrongful act

or neglect or default of the owner of the vehicle concerned.

Therefore, the victim of an accident or his dependants have an

option either to proceed under Section 166 of the Act or under

Section 163A of the Act. Once they approach the Tribunal

under Section 166 of the Act, they have necessarily to take

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 12

upon themselves the burden of establishing the negligence of

the driver or owner of the vehicle concerned. But if they

proceed under Section 163A of the Act, the compensation will

be awarded in terms of the Schedule without calling upon the

victim or his dependants to establish any negligence or default

on the part of the owner of the vehicle or the driver of the

vehicle.

25. In Pushpabai Purshottam Udeshi & Ors. Vs. M/s

Ranjit Ginning & Pressing Co. (P) Ltd. & Anr. [(1977) 3

S.C.R. 372], two of the learned judges who constituted the

Bench in Minu B. Mehta (supra) held that when a car is

driven by the owner's employee on owner's business, the

normal rule was that it was for the claimant for compensation

to prove negligence. When the Manager of the owner while

driving the car on the business of the owner took in a

passenger, it would be taken that he had the authority to do

so, considering his position unless otherwise shown. If due to

his negligent driving an accident occurred and the passenger

died, the owner would be liable for compensation. The court

noticed that the modern trend was to make the master liable

for acts of his servant which may not fall within the expression

"in the course of his employment" as formerly understood.

With respect, we think that the extensions to the principle of

liability has been rightly indicated in this decision.

26. On the facts of this case, there is no finding that

Mahmood Hasan, another employee of the owner was driving

the vehicle. Even if he was, there is no finding of his

negligence. The victim was the Regional Manger of the

Company that owned the car. He was using the car given to

him by the Company for use. Whether he is treated as the

owner of the vehicle or as an employee, he is not covered by

the insurance policy taken in terms of the Act --- without any

special contract --- since there is no award under the

Workmen's Compensation Act that is required to be satisfied

by the insurer. In these circumstances, we hold that the

appellant \026 Insurance Company is not liable to indemnify the

insured and is also not obliged to satisfy the award of the

Tribunal/Court and then have recourse to the insured, the

owner of the vehicle. The High Court was in error in modifying

the award of the Tribunal in that regard.

27. We therefore allow the appeal and reversing the

decision of the High Court, restore the award of the Tribunal

exonerating the appellant from liability. We make no order as

to costs.