SHAMANNA AND ANOTHER versus THE DIVISIONAL MANAGER THE ORIENTAL INSURANCE CO. LTD. AND ORS. on 8 August 2018

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SUPREME COURT REPORTS

[2018] 9 S.C.R.

A

SHAMANNA AND ANOTHER

v.

THE DIVISIONAL MANAGER

THE ORIENTAL INSURANCE CO. LTD. AND ORS.(Civil Appeal No. 8144 of 2018)

B

AUGUST 08, 2018

[RANJAN GOGOI AND R. BANUMATHI, JJ.]

Compensation: Motor Vehicles Accident – Third party risk –Liability of insurer – Son of appellants/claimants was travelling inCa Jeep which was driven in a negligent manner due to which hesustained injuries and died in the hospital – Claim petition –Tribunal directed the insurance company to pay the compensationto claimants and granted liberty to the insurance company torecover the same from the owner of the offending vehicle –DTribunal awarded compensation of Rs.3,55,500/-– High Court setaside the award passed by the Tribunal and held that only the ownerof the offending vehicle was liable to make the payment of thecompensation awarded by the Tribunal, and enhanced thecompensation awarded by the Tribunal from Rs.3,55,500/- toRs.4,94,700/- – On appeal, held: The award passed by the TribunalEdirecting the insurance company to pay the compensation amountawarded to the claimants and thereafter, recover the same from theowner of the vehicle in question, is in accordance with theJudgment passed by Supreme Court in Swaran Singh and LaxmiNarain Dhut cases – High Court ought not to have interfered withFthe award passed by the Tribunal directing the first respondent topay and recover from the owner of the vehicle – The impugnedjudgment of the High Court exonerating the insurance companyfrom its liability and directing the claimants to recover thecompensation from the owner of the vehicle set aside – However,order of the High Court enhancing the compensation fromGRs.3,55,500/- to Rs.4,94,700/- affirmed – Award passed by theTribunal restored.

Partly allowing the appeal, the Court

HELD: 1. Doctrine of “pay and recover” was consideredby the Supreme Court in Swaran Singh case wherein the SupremeH

Court examined the liability of the insurance company in cases ofbreach of policy condition due to disqualifications of the driver orinvalid driving licence of the driver and held that in case of thirdparty risks, the insurer has to indemnify the compensation amountto the third party and the insurance company may recover thesame from the insured. [Para 6] [490-D-E]

2. In the instant case, to deny the benefit of ‘pay andrecover’, what seems to have substantially weighed with the HighCourt is the reference to larger Bench made by the two-JudgeBench in National Insurance Co. Ltd. v. Parvathneni and another.In Parvathneni case, the Supreme Court pointed out that Article142 of the Constitution of India does not cover such type of casesand that “if the insurance company has no liability to pay at all,then, it cannot be compelled by order of the court in exercise of itsjurisdiction under Article 142 of the Constitution of India to pay thecompensation amount and later on recover it from the owner of thevehicle”. The above reference in Parvathneni case was disposedof by the three-Judges Bench keeping the questions of law opento be decided in an appropriate case. Since the reference to thelarger bench in Parvathneni case was disposed of by keeping thequestions of law open, therefore the decision in Swaran Singhcase followed in Laxmi Narain Dhut and other cases hold thefield. [Paras 11 and 12] [494-B-F]

3. Thus, the award passed by the Tribunal directing theinsurance company to pay the compensation amount awarded tothe claimants and thereafter, recover the same from the owner ofthe vehicle in question, is in accordance with the judgment passedby this Court in Swaran Singh and Laxmi Narain Dhut cases.The High Court wrongly interfered with the award passed by theTribunal directing the first respondent to pay and recoverfrom the owner of the vehicle. The impugned judgment of theHigh Court exonerating the insurance company fromits liability and directing the claimants to recoverthe compensation from the owner of the vehicle is setaside and the award passed by the Tribunal is restored. [Para 12][494-F-H]

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ANational Insurance Company Ltd. v. Swaran Singh andOthers (2004) 3 SCC 297 : [2004] 1 SCR 180 ; NationalInsurance Co. Ltd. v. Laxmi Narain Dhut (2007) 3 SCC700 : [2007] 3 SCR 579 – relied on.

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Oriental Insurance Co. Ltd. v. K.C. SubramanyamMANU/KA/0945/2012 ; Prem Kumari v. Prahlad Devand Others (2008) 3 SCC 193 : [2008] 1 SCR 874 ;National Insurance Co., Ltd. v. Bommithi Subbhayammaand Others (2005) 12 SCC 243 ; Oriental InsuranceCo. Ltd. v. Brij Mohan and Others (2007) 7 SCC 56 :[2007] 6 SCR 843 ; National Insurance Co. Ltd. v.Parvathneni and Another (2009) 8 SCC 785 ; OrientalInsurance Co. Ltd. v. Nanjappan and Others (2004) 13SCC 224 : [2004] 2 SCR 365 – referred to.

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Case Law Reference

[2004] 1 SCR 180

[2007] 3 SCR 579

[2008] 1 SCR 874

(2005) 12 SCC 243 referred to

[2007] 6 SCR 843

(2009) 8 SCC 785

[2004] 2 SCR 365

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8144of 2018.

From the Judgment and Order dated 14.09.2016 of the High CourtGof Karnataka at Dharwad Bench in MFA No. 24534/2010(MV).

Manjunath Meled, Anil Kumar, Ravinder Singh, Ms. Astha Sharma,Advs. for the appearing parties.

The Judgment of the Court was delivered by

R. BANUMATHI, J. Leave granted.

2. This appeal arises out of the judgment dated 14.09.2016 passedby the High Court of Karnataka at Dharwad Bench in MFA No.24534of 2010 in and by which the High Court reversed the award passed bythe Tribunal for “pay and recover” holding that the owner of the vehicleis liable to pay the compensation to the appellants/claimants. The HighCourt enhanced the compensation from Rs.3,55,500/- to Rs.4,94,700/-with interest at the rate of 6% per annum.

3. On 14.04.2008, Shankareppa Pattar son of the appellants/claimants was travelling in a jeep bearing Reg.No.KA-22/M-3805. Thejeep was driven negligently due to which door of the jeep suddenly openedand Shankareppa was thrown out of the vehicle and sustained grievousinjuries and died in the hospital. In the claim petition filed by the appellants/parents of the deceased Shankareppa, the Tribunal awardedcompensation of Rs.3,55,500/- with interest at 6% per annum from thedate of claim petition till realisation. Since the driver of the jeep had novalid driving licence at the time of the accident and since there wasviolation of the terms of the insurance policy, the Tribunal directed theinsurance company to pay the compensation to the claimants and grantedliberty to the insurance company to recover the same from the owner ofthe offending vehicle.

4. Being aggrieved by the award directing the insurer to pay thecompensation amount to the claimants and recover the same from theowner of the vehicle, the insurance company filed appeal before theHigh Court. The claimants have also filed appeal seeking enhancementof compensation. The High Court referred to its own judgment in thecase of Oriental Insurance Co. Ltd. v. K.C. SubramanyamMANU/KA/0945/2012 : ILR 2012 KAR 5241 and held that the SupremeCourt directed the insurance company to make payment to the claimantsand to recover the same from the owner of the vehicle in exercise of itsdiscretionary power under Article 142 of the Constitution of India. TheHigh Court observed that power under Article 142 of the Constitution isvested only with the Supreme Court and such power is not vested withthe High Court or the Tribunal and set aside the award passed by theTribunal directing the insurance company to pay compensation to the A

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Aclaimants and recover the same from the owner of the vehicle is notsustainable. The High Court held that only the owner of the offendingvehicle is liable to make the payment of the compensation amountawarded by the Tribunal. The High Court has enhanced the compensationawarded by the Tribunal from Rs.3,55,500/- to Rs.4,94,700/-. To determinethe loss of dependency, the High Court has taken into consideration theBage of the deceased Shankareppa and has adopted multiplier of ‘18’instead of multiplier of ‘14’. Being aggrieved by the judgment of theHigh Court setting aside the direction to the insurance company to “payand recover”, the appellants/claimants have preferred this appeal.

5. We have heard the learned counsel for the parties. We haveCgone through the impugned judgment and perused the materials placedon record.

6. In the case of third party risks, as per the decision in NationalInsurance Company Ltd. v. Swaran Singh and others (2004) 3 SCC297, the insurer had to indemnify the compensation amount payable toDthe third party and the insurance company may recover the same fromthe insured. Doctrine of “pay and recover” was considered by theSupreme Court in Swaran Singh case wherein the Supreme Courtexamined the liability of the insurance company in cases of breach ofpolicy condition due to disqualifications of the driver or invalid drivinglicence of the driver and held that in case of third party risks, the insurerEhas to indemnify the compensation amount to the third party and theinsurance company may recover the same from the insured. Elaboratelyconsidering the insurer’s contractual liability as well as statutory liabilityvis-a-vis the claims of third parties, the Supreme Court issued detailedguidelines as to how and in what circumstances, “pay and recover” canFbe ordered. In para (110), the Supreme Court summarised its conclusionsas under:- “110. The summary of our findings to the various issues as raisedin these petitions is as follows:

(i) Chapter XI of the Motor Vehicles Act, 1988 providingGcompulsory insurance of vehicles against third-party risks is asocial welfare legislation to extend relief by compensation to victimsof accidents caused by use of motor vehicles. The provisions ofcompulsory insurance coverage of all vehicles are with thisparamount object and the provisions of the Act have to be sointerpreted as to effectuate the said object.H

(ii) An insurer is entitled to raise a defence in a claim petition filedunder Section 163-A or Section 166 of the Motor Vehicles Act,1988, inter alia, in terms of Section 149(2)(a)(ii) of the said Act.

(iii) The breach of policy condition e.g. disqualification of the driveror invalid driving licence of the driver, as contained in sub-section(2)(a)(ii) of Section 149, has to be proved to have been committedby the insured for avoiding liability by the insurer. Mere absence,fake or invalid driving licence or disqualification of the driver fordriving at the relevant time, are not in themselves defencesavailable to the insurer against either the insured or the third parties.To avoid its liability towards the insured, the insurer has to provethat the insured was guilty of negligence and failed to exercisereasonable care in the matter of fulfilling the condition of the policyregarding use of vehicles by a duly licensed driver or one whowas not disqualified to drive at the relevant time.

(iv) Insurance companies, however, with a view to avoid theirliability must not only establish the available defence(s) raised inthe said proceedings but must also establish “breach” on the partof the owner of the vehicle; the burden of proof wherefore wouldbe on them, (v) The court cannot lay down any criteria as to howthe said burden would be discharged, inasmuch as the same woulddepend upon the facts and circumstances of each case.

(vi) Even where the insurer is able to prove breach on the part ofthe insured concerning the policy condition regarding holding of avalid licence by the driver or his qualification to drive during therelevant period, the insurer would not be allowed to avoid its liabilitytowards the insured unless the said breach or breaches on thecondition of driving licence is/are so fundamental as are found tohave contributed to the cause of the accident. The Tribunals ininterpreting the policy conditions would apply “the rule of mainpurpose” and the concept of “fundamental breach” to allowdefences available to the insurer under Section 149(2) of the Act.

(vii) The question, as to whether the owner has taken reasonablecare to find out as to whether the driving licence produced by thedriver (a fake one or otherwise), does not fulfill the requirementsof law or not will have to be determined in each case.

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[2018] 9 S.C.R.

(viii) If a vehicle at the time of accident was driven by a personhaving a learner’s licence, the insurance companies would be liableto satisfy the decree.

(ix) The Claims Tribunal constituted under Section 165 read withSection 168 is empowered to adjudicate all claims in respect ofthe accidents involving death or of bodily injury or damage toproperty of third party arising in use of motor vehicle. The saidpower of the Tribunal is not restricted to decide the claims interse between claimant or claimants on one side and insured, insurerand driver on the other. In the course of adjudicating the claim forcompensation and to decide the availability of defence or defencesto the insurer, the Tribunal has necessarily the power and jurisdictionto decide disputes inter se between the insurer and the insured.The decision rendered on the claims and disputes inter se betweenthe insurer and insured in the course of adjudication of claim forcompensation by the claimants and the award made thereon isenforceable and executable in the same manner as provided inSection 174 of the Act for enforcement and execution of the awardin favour of the claimants.

(x) Where on adjudication of the claim under the Act the Tribunalarrives at a conclusion that the insurer has satisfactorily provedits defence in accordance with the provisions of Section 149(2)read with sub-section (7), as interpreted by this Court above, theTribunal can direct that the insurer is liable to be reimbursed by the insured for the compensation and other amounts which it hasbeen compelled to pay to the third party under the award of theTribunal. Such determination of claim by the Tribunal will beenforceable and the money found due to the insurer from theinsured will be recoverable on a certificate issued by the Tribunalto the Collector in the same manner under Section 174 of the Actas arrears of land revenue. The certificate will be issued for therecovery as arrears of land revenue only if, as required by sub-section (3) of Section 168 of the Act the insured fails to depositthe amount awarded in favour of the insurer within thirty daysfrom the date of announcement of the award by the Tribunal.

(xi) The provisions contained in sub-section (4) with the provisothere under and sub-section (5) which are intended to coverspecified contingencies mentioned therein to enable the insurer to

recover the amount paid under the contract of insurance on behalfof the insured can be taken recourse to by the Tribunal and beextended to claims and defences of the insurer against the insuredby relegating them to the remedy before regular court in caseswhere on given facts and circumstances adjudication of their claimsinter se might delay the adjudication of the claims of the victims,”

(Underlining added)

7. As per the decision in Swaran Singh case, onus is alwaysupon the insurance company to prove that the driver had no valid drivinglicence and that there was breach of policy conditions. Where the driverdid not possess the valid driving licence and there are breach of policyconditions, “pay and recover” can be ordered in case of third party risks.The Tribunal is required to consider as to whether the owner has takenreasonable care to find out as to whether the driving licence producedby the driver, does not fulfill the requirements of law or not willhave to be determined in each case.

8. The Supreme Court considered the decision of Swaran Singhcase in subsequent decision in National Insurance Co. Ltd. v. LaxmiNarain Dhut, (2007) 3 SCC 700, wherein this Court held that “thedecision in Swaran Singh case has no application to cases otherthan third party risks and in case of third party risks the insurerhas to indemnify the amount and if so advised, to recover the samefrom the insured”. The same principle was reiterated in Prem Kumariv. Prahlad Dev and others (2008) 3 SCC 193.

9. For the sake of completion, we may refer to few judgmentswhere the breach of policy conditions was fundamental and the SupremeCourt taking contrary view that the insurance companies were not liableto pay the compensation. In National Insurance Co., Ltd. v. BommithiSubbhayamma and others, (2005) 12 SCC 243, the Supreme Courtreversed the judgment of Andhra Pradesh High Court in making theinsurance company liable for payment of compensation in respect ofgratuitous passengers carried in the goods vehicle.

10. In Oriental Insurance Co. Ltd. v. Brij Mohan and others(2007) 7 SCC 56, the claimant was travelling in the trolley attached totractor carrying earth to brick kiln. It was found that the tractor and thetrolley were not used for “agricultural works”, the only purpose for whichthe tractor was insured, when the claimant sustained the injuries. The A

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ASupreme Court though held that the insurance company is not liable topay compensation, however, invoked the power vested in the SupremeCourt under Article 142 of the Constitution of India in directing theinsurance company to satisfy the award by paying compensation to theinsured/claimant and realise the same from the owner of the tractor.

B11. In the present case, to deny the benefit of ‘pay and recover’,what seems to have substantially weighed with the High Court is thereference to larger Bench made by the two-Judge Bench in NationalInsurance Co. Ltd. v. Parvathneni and another (2009) 8 SCC 785which doubted the correctness of the decisions which in exercise ofjurisdiction under Article 142 of the Constitution of India directingCinsurance company to pay the compensation amount even thoughinsurance company has no liability to pay. In Parvathneni case, theSupreme Court pointed out that Article 142 of the Constitution of Indiadoes not cover such type of cases and that “if the insurance companyhas no liability to pay at all, then, it cannot be compelled by orderDof the court in exercise of its jurisdiction under Article 142 of theConstitution of India to pay the compensation amount and later onrecover it from the owner of the vehicle”. The above reference inParvathneni case has been disposed of on 17.09.2013 by the three-Judges Bench keeping the questions of law open to be decided in anappropriate case.E

12. Since the reference to the larger bench in Parvathneni casehas been disposed of by keeping the questions of law open to be decidedin an appropriate case, presently the decision in Swaran Singh casefollowed in Laxmi Narain Dhut and other cases hold the field. Theaward passed by the Tribunal directing the insurance company to payFthe compensation amount awarded to the claimants and thereafter, recoverthe same from the owner of the vehicle in question, is in accordancewith the judgment passed by this Court in Swaran Singh and LaxmiNarain Dhut cases. While so, in our view, the High Court ought not tohave interfered with the award passed by the Tribunal directing the firstGrespondent to pay and recover from the owner of the vehicle. Theimpugned judgment of the High Court exonerating the insurance companyfrom its liability and directing the claimants to recover the compensationfrom the owner of the vehicle is set aside and the award passed by theTribunal is restored.

13. So far as the recovery of the amount from the owner of thevehicle, the insurance company shall recover as held in the decision inOriental Insurance Co. Ltd. v. Nanjappan and others (2004) 13 SCC224 where this Court held that “….that for the purpose of recoveringthe same from the insured, the insurer shall not be required to file asuit. It may initiate a proceeding before the concerned ExecutingCourt as if the dispute between the insurer and the owner was thesubject matter of determination before the Tribunal and the issue isdecided against the owner and in favour of the insurer.”

14. In the result, the impugned judgment of the High Court insofaras enhancement of the compensation to Rs.4,94,700/- is affirmed. Insofaras direction of the impugned judgment directing the appellants/claimantsto recover the compensation from the owner of the vehicle is set asideand the appeal is partly allowed. The first respondent insurance companyshall pay the enhanced compensation to the appellants/claimants alongwith the accrued interest and the insurance company shall recover thesame from the owner of the vehicle. No costs.

Ankit Gyan

Appeal partly allowed.

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