IMPORTANT POINT
In order to avoid liability by Insurance Company it is not sufficient to show that the person driving at the time of accident was not duly licenced. The Insurance Company must establish that the breach was on the part of the assured.

Headnote:Motor Vehicles Act, 1988-Section 149 (=Section 96 of Motor Vehicles Act, 1939)-Liability of Insurance Company-Compulsory third party insurance-Whether Insurance Company can avoid liability to a third party on the ground that licence of the driver of the car was a fake licence? (No)-Appeal dismissed with costs as in this case even it has not been proved that the licence was fake-Case law discussed.
Held : If Section 149 is read as a whole it is clear that sub-section (7) is not giving any additional right to the Insurance Company. On the contrary it is emphasising that the Insurance Company cannot avoid liability except on the limited grounds set out in sub-section (2). Now let us consider Section 149(2). Reliance has been placed on Section 149(2)(a)(ii). As seen in order to avoid liability under this provision it must be shown that there is a "breach." As held in Skandia s and Sohan Lal Passi s cases (supra) the breach must be on part of the insured. We are in full agreement with that. To hold otherwise would lead to absurd results. Just to take an example, suppose a vehicle is stolen. Whilst it is being driven by the thief there is an accident. The thief is caught and it is ascertained that he had no licence. Can the Insurance Company disown liability? The answer has to be an emphatic "No". To hold otherwise would be to negate the very purpose of compulsory insurance. The injured or relatives of person killed in the accident may find that the decree obtained by them is only a paper decree as the owner is a man of straw. The owner himself would be an innocent sufferer. It is for this reason that the Legislature, in its wisdom, has made insurance, at least third party insurance, compulsory. The aim and purpose being that an Insurance Company would be available to pay. The business of the Company is to insurance. In all businesses there is an element of risk. All persons carrying on business must take risks associated with that business. Thus it is equitable that the business which is run for making profits also bears the risk associated with it. At the same time innocent parties must not be made to suffer or loss. These provisions meet these requirements. We are thus in agreement with what is laid down in aforementioned cases viz that in order to avoid liability it is not sufficient to show that the person driving at the time of accident was not duly licensed. The Insurance Company must establish that the breach was on the part of the insured. Section 3 of the Motor Vehicles Act, 1988 prohibits driving of a motor vehicle in any public place unless the driver has an effective driving licence. Further Section 180 of the Motor Vehicles Act makes an owner or person in charge of a motor vehicle punishable with imprisonment or fine if he causes or permits a person without a licence to drive the vehicle. It is clear that the punishment under Section 180 can only be imposed if the owner or person in charge of vehicle "causes or permits" driving by a person not duly licensed. Thus there can be no punishment if a person without a licence drives without permission of the owner. Section 149(2)(a)(ii) merely recognises this condition. It therefore only absolves the Insurance Company where there is a breach by the insured. When an owner is hiring a driver he will therefore have to check whether the driver has a driving licence. If the driver produces a driving licence which on the face of it looks genuine, the owner is not expected to find out whether the licence has in fact been issued by a competent authority or not. The owner would then take the test of the driver. If he finds that the driver is competent to drive the vehicle, he will hire the driver. We find it rather strange that Insurance Companies expect owners to make enquiries with RTO s, which are spread all over the country, whether the driving licence shown to them is valid or not. Thus where the owner has satisfied himself that the driver has a licence and is driving competently there would be no breach of Section 149(2)(a)(ii). The Insurance Company would not then be absolved of liability. If it ultimately turns out that the licence was fake the Insurance Company would continue to remain liable unless they prove that the owner/insured was aware or had noticed that the licence was fake and still permitted that person to drive. More importantly even in such a case the Insurance Company would remain liable to the innocent third party, but it may be able to recover from the insured. This is the law which has been laid down in Skandia s, Sohan Lal Passi s and Kamla s case. We are in full agreement with the views expressed therein and see no reason to take a different view. In this view of the matter we see no substance in this appeal. The appeal stands dismissed with costs of Rs. 20,000/-. This amount of costs to be shared equally between the claimants on one hand and the insured on the other. Clarified that the costs awarded herein is in addition to the costs directed to be paid by the Motors Accidents Claim Tribunal. The amount deposited is allowed to be withdrawn by the claimants i.e. respondents Nos. 1 to 11 herein. (Paras 17 to 22)

Judgement Key Points

Key Points: - (!) Section 149(1) requires insurer to pay to the third-party claimant notwithstanding possible avoidance of policy, subject to Section 149(2) grounds. - (!) Section 149(2) lists defenses, including breach of a specified condition such as driving by a non-duly licensed person. - (!) - (!) The breach must be by the insured; mere driving by an unlicensed person (e.g., thief) does not automatically absolve the insurer if the insured was not at fault or did not breach. - (!) - (!) Read-down approach: exclusion clauses should be harmonized with protection of victims; insurer’s breach must be established by the insured’s fault. - (!) - (!) In cases where insured engaged a licensed driver and placed vehicle in charge, the insurer cannot escape liability unless the insured wilfully violated the condition. - (!) - (!) Sub-sections clarify the grounds and interpretation of notice and defense rights for insurers; sub-section (7) does not grant additional rights beyond sub-section (2). - (!) - (!) Sub-sections outline that the insurer must pay then recover from the liable party, with provisions on recourse and material facts. - (!) Conclusion: Appeal dismissed; insurer liable unless proven breach by insured; costs awarded.

What is the liability of an Insurance Company under Section 149/149(2)(a)(ii) of the Motor Vehicles Act, 1988 when the driver’s licence is alleged to be fake?

How to interpret the breach requirement under Section 149(2)(a)(ii) and when can the insured be deemed to have breached the policy?

What are the obligations of the owner/insured and the insurer regarding recovery of amounts where the insurer pays compensation despite questions about a driver’s licence?

ORDER

Leave granted.

2. Heard parties.

3. This appeal is against a judgment of the High Court dated 5.12.2000.

4. By this appeal, the Insurance Company seeks to avoid its liability on the ground that the licence of the driver of the car was a fake licence. As is indicated hereafter the question whether an Insurance Company can avoid liability to a third party who is involved in the accident is no longer res integra. It is fully covered by decisions of this Court. We find that in spite of the point being fully covered, in a large number of matters the Insurance Companies are still seeking to get out of liability to third parties on the ground that the licence was fake. We have noticed that many matters are still being brought to this Court on this point. It is therefore necessary to again reiterate the legal position. In this case the Appellants have not even been able to prove that the licence was fake. Yet they have deprived the claimants of use of the money for all these years by filing unnecessary appeals.

5. In this case, the driver, at time of accident was one Janu s/o Kallu. During trial he filed, before the Motor Accident Claims Tribunal, his original licence. The licence bore number 9195/MTR/96P dated 15th May, 1989. The Appellant-Insurance Company sought to prove that a licence bearing No. 5195/MTR/96P had been issued in the name of one Kalpana Gupta and not in the name of the Driver. The Insurance Company get produced records of the concerned RTO for the year 1996. They made no efforts to get produced concerned records of 1989. To be noted that the year 1989 comes before 1996. Therefore even presuming there was some confusion whether the number of the licence was 5195 or 9195, still the records of 1989 were required to be produced. It is clear that the licence issued on 15th May, 1989 had nothing to do with the licence, if any, issued to Kalpana Gupta in 1996. If anything the licence issued in 1996 could have been a renewal of a fake licence. The Motor Accident Claims Tribunal did not accept that the licence was fake. It held that, even if the licence was fake, the law was that Insurance Company was liable to pay the compensation as they had failed to prove that the insured had deliberately committed any breach of any condition.

6. The Appellants then filed an Appeal before the High Court. The High Court dismissed the Appeal without going into the question whether the licence was fake or not. The High Court held that even if the licence was fake, the settled law was that the Insurance Company had to first pay to the claimants and they could then recover from the owner, if in law they were entitled to do so. One would have thought that now that two Courts had pointed out the settled law the Insurance Company would honour its commitment. Alas better sense has still not prevailed.

7. As stated earlier, in this case the Appellants have not proved that the licence was fake. For that reason itself they should have paid up the amount awarded the claimant. But the Appellant - Insurance Company wants this Court to reconsider its earlier decisions and hold that the Insurance Company is absolved of its liability to pay to the claimant if it proves that the licence was fake.

8. We have heard the parties. Mr. Vishnu Mehra, learned counsel for the Appellants has attempted, with great fervor, to convince us that the settled law is not correct. We remain unconvinced.

9. In the case of British India General Insurance Co. Ltd. versus Captain Itbar Singh and others reported in 1960 (1) SCR 168, the question was whether an Insurance Company can take up defences other than those enumerated in Section 96(2) of the Motor Vehicles Act, 1939. The provisions of Section 96 including Section 96(6) were considered. It was held that the Insurance Company got a right to defend or file an appeal only by virtue of statute and therefore the right could only be exercised subject to the restriction laid down by the statute. It was held that an Insura

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2003 Supreme(SC) 251

IMPORTANT POINTIn order to avoid liability by Insurance Company it is not sufficient to show that the person driving at the time of accident was not duly licenced. The Insurance Company must establish that the breach was on the part of the assured.

What is the liability of an Insurance Company under Section 149/149(2)(a)(ii) of the Motor Vehicles Act, 1988 when the driver’s licence is alleged to be fake?

How to interpret the breach requirement under Section 149(2)(a)(ii) and when can the insured be deemed to have breached the policy?

What are the obligations of the owner/insured and the insurer regarding recovery of amounts where the insurer pays compensation despite questions about a driver’s licence?

Cases Referred (4)

IMPORTANT POINT
In order to avoid liability by Insurance Company it is not sufficient to show that the person driving at the time of accident was not duly licenced. The Insurance Company must establish that the breach was on the part of the assured.