In view of the decision in HDFC Bank Limited v. Reshma & Ors.
(supra), the insurer cannot escape the liability, when ownership changes due
to the hypothecation agreement. In the case of hire also, it cannot escape the
liability, even if the ownership changes. Even though, KSRTC is treated as
owner under Section 2(30) of the Act of 1988, the registered owner
continues to remain liable as per terms and conditions of lease agreement
lawfully entered into with KSRTC.
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.5293 OF 2010
Managing Director, K.S.R.T.C. ... Appellant
Versus
New India Assurance Co.Ltd. & Anr. ... Respondents
With
Civil Appeal No.6641 of 2010
MD Karnataka Road Transport Corpn. & Anr. … Appellants
Versus
Thippamma & Ors. … Respondents
Dated;October 27, 2015.
1. The questions involved in the appeals are whether in the wake of
lease agreement entered into by registered owner with Karnataka State Road
Transport Corporation (hereinafter referred to as the ‘KSRTC’), the
registered owner and insurer along with KSRTC can be fastened with the
liability to make payment to the claimants and whether KSRTC can recover
the amount from registered owner and its entitlement to seek
indemnification from insurer?
2. The facts giving rise to Civil Appeal No.5293 of 2010 reflect that the
accident in question was caused by the bus which was driven under the
control of KSRTC. The bus was owned by respondent no.2, T.M. Ganeshan,
insured by the New India Assurance Co. Ltd. Admittedly, an agreement
dated 28.2.2002 was entered into between the KSRTC and owner respondent
no.2. The MACT, Tumkur, Karnataka on 25.6.2007 allowed the claim
petition preferred by the claimants and awarded a sum of Rs.4,09,000/- with
interest @ 6% p.a.
3. In view of the agreement between KSRTC and the owner of the bus,
the liability was fastened upon the owner and the insurer of the vehicle
jointly and severally to make the payment of compensation, not on KSRTC.
Aggrieved thereby, the insurer preferred an appeal before the High Court of
Karnataka. The same has been allowed by the impugned judgment and
order dated 20.2.2009. The High Court has allowed the appeal filed by the
insurer and held that the liability to make the payment of compensation is
that of KSRTC alone. Aggrieved thereby, the KSRTC has come up in the
appeal before us.
4. In Civil Appeal No.6641 of 2010, the bus was plied similarly on hire
agreement by the KSRTC. The Claims Tribunal has fastened the liability
jointly and severally upon the KSRTC and upon Internal Security Fund,
Bangalore. Aggrieved thereby, the appeal was preferred in the High Court
and the same has been dismissed. Hence, Civil Appeal No.6641 of 2010
has been filed in this Court.
5. It was submitted by Shri S.N. Bhat, learned counsel for the appellant
that the High Court has erred in fastening the liability upon the KSRTC. In
view of the lease agreement for hire entered into between the KSRTC and
the owner, the owner could not escape the liability to make the payment of
compensation. As such, the insurer was liable to indemnify the owner and to
make the payment of compensation. The liability could not have been
fastened upon the KSRTC. Learned counsel has placed reliance on the
decision of this Court in Uttar Pradesh State Road Transport Corporation v.
Kulsum & Ors., (2011) 8 SCC 142.
6. Shri Vishnu Mehra, learned counsel appearing on behalf of New India
Assurance Co. Ltd. contended that in view of the fact that the vehicle was
plied under the complete control and supervision of KSRTC, it cannot
escape from the liability to make the payment of compensation. He has
relied upon the decision of this Court in Rajasthan State Road Transport
Corporation v. Kailash Nath Kothari & Ors., (1997) 7 SCC 481 and the
definition of the owner under Section 2(30) of the Motor Vehicles Act, 1988
(hereinafter referred to as the ‘Act’). He has consequently submitted that
owner and insurer have rightly been exonerated by the High Court.
7. It was submitted on behalf of the claimants that they can recover the
compensation from the KSRTC, owner and insurer jointly and severally.
8. The owner has been defined under Section 2(30) of the Motor
Vehicles Act, 1988 (hereinafter referred to as the Act of 1988). The
definition in the Act of 1988 is extracted hereunder :
“2(30) “owner” means a person in whose name a motor
vehicle stands registered, and where such person is a minor, the
guardian of such minor, and in relation to a motor vehicle
which is the subject of a hire-purchase agreement, or an
agreement of lease or an agreement of hypothecation, the
person in possession of the vehicle under that agreement;”
9. The definition of owner under Section 2(19) of the Motor Vehicles
Act, 1939 read as under:-
“2(19) "owner" means, where the person, in possession of a
motor vehicle is a minor, the guardian of such minor, and in
relation to a motor vehicle which is the subject of a hire
purchase agreement, the person in possession of the vehicle
under that agreement.”
10. Under the Act of 1988, the owner means a registered owner and where
the agreement on hire-purchase or an agreement of hypothecation has been
entered into or lease agreement, the person in possession of the vehicle is
treated as an owner.
11. Section 146 of the Act of 1988 prescribe the necessity for insurance
against third party risk. Motor vehicle cannot be used in a public place
without policy of insurance complying with the requirement of Chapter X1.
Exemption has been carved out to the vehicles owned by the Central or State
Governments and used for government purposes. Under sub-Section (3) of
Section 146, it is open to the appropriate Government to exempt the vehicle
owned by the Central or State Governments if it is used for Government
purposes or any local authority or any State transport undertaking.
12. Section 147 of the Act of 1988 deals with the requirements of policy
and limits of liability. The statutory requirement under Section 147 is that
policy of insurance must be a policy which is issued by authorised Insurer
and insures the person or class of persons specified in the policy to thePage 6
6
extent specified in sub-section (2)(i) against any liability which may be
incurred by him in respect of the death of or bodily injury to any person,
including owner of the goods or his authorised representative carried in the
vehicle or damage to any property of a third party caused by or arising out of
the use of the vehicle in a public place; and (ii) 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.
13. Certain exception have been carved out in the proviso to sub-section
(1) of section 147. It is contained in proviso (ii) that the policy shall not be
required to cover any contractual liability. Limits of the liability have been
provided in Section 147(2). The liability under Section 147(2)(1)(b) is the
amount of liability incurred and with respect to any damage to any property
of a third party, a limit of Rs.6,000/-. Section 147(5) provides that
notwithstanding anything contained in any law for the time being in force,
an insurer shall be liable to indemnify the person or classes of persons
specified in the policy in respect of any liability which the policy purports to
cover in the case of that person or those classes of persons.
14. Section 157 of the Act 1988 deals with the deemed transfer of
certificate of insurance. Provisions of Section 157 are as under:Page 7
7
“157. Transfer of certificate of insurance.—
(1) Where a person in whose favour the certificate of insurance
has been issued in accordance with the provisions of this
Chapter transfers to another person the ownership of the motor
vehicle in respect of which such insurance was taken together
with the policy of insurance relating thereto, the certificate of
insurance and the policy described in the certificate shall be
deemed to have been transferred in favour of the person to
whom the motor vehicle is transferred with effect from the date
of its transfer.
(2) The transferee shall apply within fourteen days from the
date of transfer in the prescribed form to the insurer for making
necessary changes in regard to the fact of transfer in the
certificate of insurance and the policy described in the
certificate in his favour and the insurer shall make the necessary
changes in the certificate and the policy of insurance in regard
to the transfer of insurance.”
It is apparent from Section 157(1) of the Act of 1988 that certificate
shall be deemed to have been transferred in favour of the person to whom
the motor vehicle is transferred with effect from the date of its transfer.
Section 157(2) of the Act provides that the transferee to apply within 14 days
from the date of transfer in the prescribed form to make necessary changes
in the certificate of insurance.
15. Before dilating further, we deem it appropriate to advert to the certain
clauses in the lease agreement on the basis of which vehicles are plied onPage 8
8
hire by the KSRTC. The owner of the private bus has to provide new bus to
KSRTC for the purpose of hire.
16. As per clause 6, the owner of the private bus to discharge statutory
liability. Clauses 6(i) and (ii) of lease agreement are quoted below:
“6(i) In case the owner of the private bus defaults in the
discharge of any of his statutory liability, KSRTC reserves the
right to deduct such amounts from the amount payable to the
owner as it is sufficient to discharge the liability, and if the
liability is more than the amounts payable by KSRTC to the
owner, the owner alone shall be liable to discharge the liability
and/or to make good the amount to KSRTC, if discharged by
KSRTC.
6(ii) If because of any default by the bus owner or by his/her
drivers/other employees, agent representative, any liability
comes on KSRTC, the KSRTC has the right to recover the
amount either from the bills payable or the security deposit and
to take further steps to recover the balance from the private
owner by any lawful means.”
17. The Conductor was to be provided under clause 7(iv) by the KSRTC
and was entitled to collect the fare and luggage charges etc. for and on
behalf of KSTRC.
18. As per clause 8, Drivers were to be engaged and provided by the
owner. Salary etc. was also to be paid by the owner and is subject to otherPage 9
9
conditions such as they should not have been dismissed from the services of
the Central Government etc. and should possess requisite licence.
19. Clause 14 of lease agreement with respect to insurance coverage is
also relevant which is extracted as under:
“14. The owner of the private bus shall keep the hired bus
duly insured under a Motor Vehicle comprehensive insurance
police covering all risks and all such costs shall be born by the
owner of the private bus. In case of failure to have a valid
comprehensive insurance policy. The bus will not be used for
KSRTC’s operations and it will be deemed that the bus has not
been made available to KSRTC for scheduled operations, with
all consequent of effects. The insurance shall cover
61passengers.”
20. Clause 16 relating to liability as to accidents is also important for the
purpose of decision of the case. Clauses 16(a) (b) and (c) are extracted as
under:-
“(a) The owner of the bus alone shall be solely liable for
any claim arising out of any accident, damages or loss or hurt
caused during the operation of the bus. The KSRTC shall not
be liable for any claims arising out of the use of the buses,
including claims made in connection with the impurities or loss
of life sustained by passengers, bus crew or any other road user
or to any property/person. Besides, all tortuous liability if any,
shall be borne by the owner or the insurer of the vehicle
themselves. However the accidents should be reported to the
KSRTC office/Depot.Page 10
10
(b) KSRTC may make payment of ex-gratia amount to
the victims in event of accident of such private hired buses
while on KSRTC operations as per the KSRTC’s prevailing
norms which shall be recovered from any amounts due to the
owner of such private buses or from security Deposit etc.
Further, the owner of such private bus should make prompt
payment of ‘no fault liability’ or any other claim under the law
for such accident victims. In case KSRTC is compelled to
make such payment on behalf of the owner of private buses, it
shall be recovered from any amount due to the owner by
KSRTC or receivable to him from Insurance Company or other
debtors etc. In case of non-payment to non-recovery of such
amount by KSRTC within 15 days, interest at 15% per annum
shall also be recoverable. For delays beyond 30 days KSRTC
may amount or adjustment thereof towards hire charges
payable.
(c) It shall be the responsibility of the owner of the
private bus to produce at his own cost, the driver/bus before the
court of ……… and before the police authorities whenever
required in case of accident or any other contingencies or on
order or directions by the Judicial Or Executive authorities
……. charges shall be payable by KSRTC in such cases.”
It is apparent from clause 16(a) that in case of accident claim, the
KSRTC shall not be liable for any claim arising out of use of buses including
loss of life sustained by passengers or any other user or to any
property/person. If KSRTC makes any ex gratia payment in the case of
accident, the same shall be recovered from any amount due to the owner in
case KSRTC is made liable to make payment of compensation on behalf ofPage 11
11
private buses it shall be recovered from any amount due to the owner by
KSRTC or receivable to him from Insurance Company etc.
21. Clauses 17, 18, 19 and 20 are also relevant they are extracted below:
“17. The KSRTC shall not be liable for any loss caused
to the buses hired, at any point of time including during the
period of agitations, strikes, accidents, natural calamities etc.
18. The owner of the private bus shall be liable for shall
alone discharge or meet all claims including fines and penalties
arising out of violation of traffic Rules, and Regulations,
Statutes, Acts, Rules and Regulations etc., in force for act of
omissions or commissions committed either by his/her drivers
or by any other person not authorised to drive. The owner of
the private bus shall be liable and shall meet and discharge any
claim for compensation or damages on account of tortuous
liability.
19(a) The owner of the private bus shall provide and
make available bus/buses as per the contract to KSRTC on all
days or operation in time as per the schedule departing time and
also as so as to cover the entire schedule Kms. Duty.
(b) The owner of the private bus shall not withdraw any
bus from the operation except with advance notice before 24
hours and with prior written consent of the depot manager
concerned of KSRTC to do so. In case any violation of this
clause, the owner shall be liable for imposition of penalties by
the KSRTC.
20(1)(a) The KSRTC on its part agrees to pay hire
charges to the owner at the rates inculcation in the hiring rate
charts at Annexure A1 and A2, subject to the rules, terms and
conditions of the contract. The hiring rate applicable shall bePage 12
12
based on the schedule Kms. of the route allotted to the hired
bus, except as otherwise provided herein.”
22. The main question for consideration is whether the registered owner
and insurer can escape the liability in view of the provisions contained in the
Act and in view of the aforesaid terms and conditions of the lease
agreement. The question also arise whether claimants can also recover the
amount from KSRTC.
23. The High Court has held that actual control of the bus was with the
KSRTC and the driver was driving the bus under its control. Relying upon
the decisions in National Insurance Co. Ltd. V. Deepa Devi & Ors., (2008) 1
SCC 414 and Rajasthan State Road Transport Corporation v. Kailash Nath
Kothari & Ors., (1997) 7 SCC 481, it was held that KSRTC to be the owner
under Section 2(30) of the Act. There is no liability of the registered owner
as such insurer cannot be saddled with liability to indemnify. Hence, the
registered owner and the insurer have been exonerated. The KSRTC has
been fastened with the liability.
In our opinion, decision of High Court is not sustainable. The
provisions contained in the Act are clear. No vehicle can be driven without
insurance as provided in Section 147 whereas clause 14 of lease agreementPage 13
13
between KSRTC and the owner clearly stipulate that it shall be the liability
of the owner to provide the comprehensive insurance covers for all kind of
accidental risks to the passengers, other persons/property. The provisions of
said clause of the agreement are not shown to be opposed to any provision in
the Contract Act or any of the provisions contained under the Act of 1988.
Hiring of public service vehicles is not prohibited under any of the
provisions of the aforesaid laws. It could not be said to be inconsistent user
by KSRTC. The agreement is not shown to be illegal in any manner
whatsoever nor shown to be opposed to the public policy.
24. The policy of insurance is contractual obligation between the insured
and the insurer. It has not been shown that while entering into the aforesaid
agreement of lease for hiring the buses, any of the provisions contained in
the insurance policy has been violated. It has not been shown that owner
could not have given bus on hire as per any provision of policy. It was the
liability of the registered owner to provide the bus regularly, to employ a
driver, to make the payment of salary to the driver and the driver should be
duly licenced and not disqualified as provided in the agreement though
buses were to be plied on the routes as specified by the KSRTC and hiring
charges were required to be paid to the registered owner. In the absence of
any stipulation prohibiting such an arrangement in the insurance policy, wePage 14
14
find that in view of agreement of lease the registered owner has owned the
liability to pay. The insurer cannot also escape the liability.
25. Apart from that what is provided under Section 157 of the Act of 1988
is that the certificate of insurance and the policy described in the certificate
shall be deemed to have been transferred in favour of the person to whom
the motor vehicle is transferred with effect from the date of its transfer.
Even if there is a transfer of the vehicle by sale, the insurer cannot escape
the liability as there is deemed transfer of the certificate of insurance. In the
instant case it is not complete transfer of the vehicle it has been given on hire
for which there is no prohibition and no condition/policy of insurance as
shown to prohibit plying of vehicle on hire. The vehicle was not used for
inconsistent purpose. Thus, in the absence of any legal prohibition and any
violation of terms and conditions of the policy, more so, in view of the
provisions of Section 157 of the Act of 1988, we are of considered opinion
that the insurer cannot escape the liability.
26. Now, we come to the question of exclusion of contractual liability
under second proviso to Section 147(1). When we read provisions of
Section 147 with Section 157 together, it leaves no room for any doubt that
there is deemed transfer of policy in case of transfer of vehicle. Hence,
liability of insurer continues notwithstanding the contract of transfer ofPage 15
15
vehicle, such contractual liability cannot be said to be excluded by virtue of
second proviso to Section 147(1) of Act of 1988. Higher purchase
agreement, an agreement for lease or an agreement for hypothecation are
covered under Section 2(30) of the Act of 1988. A person in possession is
considered to be an owner of the vehicle under such agreements. In case
such contractual liability is excluded then anomalous results would occur
and financer under higher purchase agreement would be held liable and so
on. In our view, an agreement for lease on hire cannot be said to be contract
envisaged for exclusion under contractual liability in second proviso to
Section 147(1) of the Act of 1988. The High Court has erred in holding
otherwise.
27. The KSRTC can also be treated as owner for the purposes of Section
2(30) of the Act of 1988 plying the buses under lease agreement. The
insurance company admittedly has insured the vehicle and taken the
requisite premium and it is not a case set up by the insurer that intimation
was not given to the insurance company of the hiring arrangement . Even if
the intimation had not been given, in our opinion, the insurer cannot escape
the liability to indemnify as in the case of hiring of vehicle intimation is not
required to be given. It is only in the case of complete transfer of the vehicle
when change of registration particulars are required under Section 157 of thePage 16
16
Act, an intimation has to be given by the transferee for effecting necessary
changes in the policy. Even otherwise, that would be a ministerial act and
the insurer cannot escape the liability for that reason. When the KSRTC has
become the owner of the vehicle during the period it was on hire with it for
the purpose of Section 2(30) of the Act by virtue of provisions contained in
Section 157 of the Act, the insurance policy shall be deemed to be
transferred. As such, insurer is liable to make indemnification and cannot
escape the liability so incurred by the KSRTC.
28. In RSRTC v. Kailash Nath Kothari (supra), question of liability of
insurance company did not come up for consideration. The vehicle was
taken by RSRTC from its owner Sanjay Kumar and it was being plied on the
route by RSRTC. The case arose out of accident date 17.7.1981 under the
Act of 1939. The definition of second owner under section 2(19) of Act of
1939 came up for consideration before this Court, and conditions 4 to 7 and
15 of agreement between RSRTC and the owner, this Court held that vehicle
in question was in possession and actual control of RSRTC as such it
cannot escape from liability. Relevant portion of decision is extracted
below:-Page 17
17
“15. Conditions 4 to 7 and 15 of the agreement executed
between the RSRTC and the owner read:
“4. The Corporation shall appoint the conductor for the
operation of the bus given on contract by the second party and
the conductor of the Corporation shall do the work of issuing
tickets to the passengers, to receive the fare, to let all the
passengers get in and get out of the bus, to help the passengers
to load and unload their goods, to stop the bus at the stops fixed
by the Corporation and to operate the bus according to timetable.
5. The tickets, waybills and other stationery shall be
supplied by the Corporation to the said conductor of the
Corporation.
6. The driver of the bus shall have to follow all such
instructions of the conductor, which shall be necessary under
the rules for the operation of the bus.
7. The driver of the bus shall comply with all the orders of
the Corporation or of the officers appointed by the Corporation.
15. Upon the accident of the bus taking place the owner of
the bus shall be liable for the loss, damages and for the
liabilities relating to the safety of the passengers. The
Corporation shall not be liable for any accident. If the
Corporation is required to make any payment or incur any
expenses through some court or under some mutual
compromise, the Corporation shall be able to recover such
amounts from the owner of the bus after deducting the same
from the amounts payable to him.”
16. The admitted facts unmistakably show that the vehicle in
question was in possession and under the actual control of
RSRTC for the purpose of running on the specified route and
was being used for carrying, on hire, passengers by the RSRTC.
The driver was to carry out instructions, orders and directions
of the conductor and other officers of the RSRTC for operation
of the bus on the route specified by the RSRTC.
17. The definition of owner under Section 2(19) of the Act is
not exhaustive. It has, therefore to be construed, in a widerPage 18
18
sense, in the facts and circumstances of a given case. The
expression owner must include, in a given case, the person who
has the actual possession and control of the vehicle and under
whose directions and commands the driver is obliged to operate
the bus. To confine the meaning of “owner” to the registered
owner only would in a case where the vehicle is in the actual
possession and control of the hirer not be proper for the purpose
of fastening of liability in case of an accident. The liability of
the “owner” is vicarious for the tort committed by its employee
during the course of his employment and it would be a question
of fact in each case as to on whom can vicarious liability be
fastened in the case of an accident. In this case, Shri Sanjay
Kumar, the owner of the bus could not ply the bus on the
particular route for which he had no permit and he in fact was
not plying the bus on that route. The services of the driver were
transferred along with complete “control” to RSRTC, under
whose directions, instructions and command the driver was to
ply or not to ply the ill-fated bus on the fateful day. The
passengers were being carried by RSRTC on receiving fare
from them. Shri Sanjay Kumar was therefore not concerned
with the passengers travelling in that bus on the particular route
on payment of fare to RSRTC. Driver of the bus, even though
an employee of the owner, was at the relevant time performing
his duties under the order and command of the conductor of
RSRTC for operation of the bus. So far as the passengers of the
ill-fated bus are concerned, their privity of contract was only
with the RSRTC to whom they had paid the fare for travelling
in that bus and their safety therefore became the responsibility
of the RSRTC while travelling in the bus. They had no privity
of contract with Shri Sanjay Kumar, the owner of the bus at all.
Had it been a case only of transfer of services of the driver and
not of transfer of control of the driver from the owner to
RSRTC, the matter may have been somewhat different. But on
facts in this case and in view of Conditions 4 to 7 of the
agreement (supra), the RSRTC must be held to be vicariously
liable for the tort committed by the driver while plying the bus
under contract of the RSRTC. The general proposition of law
and the presumption arising therefrom that an employer, that is
the person who has the right to hire and fire the employee, is
generally responsible vicariously for the tort committed by thePage 19
19
employee concerned during the course of his employment and
within the scope of his authority, is a rebuttable presumption. If
the original employer is able to establish that when the servant
was lent, the effective control over him was also transferred to
the hirer, the original owner can avoid his liability and the
temporary employer or the hirer, as the case may be, must be
held vicariously liable for the tort committed by the employee
concerned in the course of his employment while under the
command and control of the hirer notwithstanding the fact that
the driver would continue to be on the payroll of the original
owner. The proposition based on the general principle as
noticed above is adequately rebutted in this case not only on the
basis of the evidence led by the parties but also on the basis of
Conditions 6 and 7 (supra), which go to show that the owner
had not merely transferred the services of the driver to the
RSRTC but actual control and the driver was to act under the
instructions, control and command of the conductor and other
officers of the RSRTC.
18. Reliance placed by learned counsel for the appellant on
Condition No. 15 of the agreement (supra) in our view is
misconceived. Apart from the fact that this clause in the
agreement between the owner and the RSRTC, to the extent it
shifts the liability for the accident from the RSRTC to the
owner, may be against the public policy as opined by the High
Court, though we are not inclined to test the correctness of that
proposition of law because on facts, we find that RSRTC cannot
escape its liability to pay compensation. The second part of
Condition No. 15 makes it abundantly clear that the RSRTC did
not completely shift the liability to the owner of the bus because
it provided for reimbursement to it in case it has to pay
compensation arising out of an accident. The words “if the
Corporation is required to make any payment or incur any
expenses through some court or under some mutual
compromise, the Corporation shall be able to recover such
amounts from the owner of the bus after deducting the same
from the amounts payable to him” in the later part of Condition
No. 15 leave no ambiguity in that behalf and clearly go to show
the intention of the parties. Thus, RSRTC cannot escape its
liability under Condition No. 15 of the agreement either. Thus,Page 20
20
both on facts and in law the liability to pay compensation for
the accident must fall on the RSRTC.”
It is apparent that question of the liability of the insurer did not come up
for consideration and also the relevant statutory provisions relating thereto in
aforesaid decision. This Court, considering clause 16 of the agreement
entered into by RSRTC and owner, held that RSRTC did not completely
shift the liability to the owner of the bus in case it has to pay compensation
arising out of an accident. In the instant cases also there are certain clauses
referred to above which indicate that if the KSRTC has to make the
payment, it can recover the same from the owner out of the amount payable
by it or from the amount payable by the insurer to the owner. On the
strength of decision in RSRTC v. Kailash Nath Kothari (supra), the KSRTC
being in actual control of the vehicle would also be liable to make the
compensation, however, in our opinion it can recover the amount from the
registered owner or insurer, as the case may be. In fact of the case, vis-à-vis,
the claimants’ liability would be joint and several upon the KSRTC,
registered owner and the insurer.
29. In National Insurance Co. v. Deepa Devi (supra), vehicle was under
requisition by the State Government and that possession on requisition was
not covered by the definition of the owner under section 2(30) in the Act ofPage 21
21
1988 or the Act of 1939. It was held by this Court as the Motor Vehicles Act
did not envisage such a situation. Owner in such a case has to be understood
from common sense point of view. Thus, the State was held liable to make
the payment of compensation. The question was altogether different in the
aforesaid case.
30. In Godavari Finance Company v. Degala Satyanarayanamma & Ors.,
(2008) 5 SCC 107, definition of owner came up for consideration. It was
held that the name of the financer was incorporated in the registration book
as owner. The respondent was held to be owner of the vehicle which was
purchased by him on being financed by Godavari Finance Company. The
financer could not be held liable to make the payment of compensation as
definition of the owner in the Act of 1939 is a comprehensive one as vehicle
which is the subject matter of hire purchase agreement, the person in
possession of the vehicle under that agreement shall be the owner. Thus, the
name of the financer in the certificate would not be decisive for
determination as to who was the owner of the vehicle. In the case of hire
purchase agreement, financer cannot ordinarily be treated to be the owner
and the person in possession is liable to pay damages for the motor
accident. This Court has held thus:Page 22
22
“15. An application for payment of compensation is filed
before the Tribunal constituted under Section 165 of the Act for
adjudicating upon the claim for compensation in respect of
accident involving the death of, or bodily injury to, persons
arising out of the use of motor vehicles, or damages to any
property of a third party so arising, or both. Use of the motor
vehicle is a sine qua non for entertaining a claim for
compensation. Ordinarily if driver of the vehicle would use the
same, he remains in possession or control thereof. Owner of the
vehicle, although may not have anything to do with the use of
vehicle at the time of the accident, actually he may be held to
be constructively liable as the employer of the driver. What is,
therefore, essential for passing an award is to find out the
liabilities of the persons who are involved in the use of the
vehicle or the persons who are vicariously liable. The insurance
company becomes a necessary party to such claims as in the
event the owner of the vehicle is found to be liable, it would
have to reimburse the owner inasmuch as a vehicle is
compulsorily insurable so far as a third party is concerned, as
contemplated under Section 147 thereof. Therefore, there
cannot be any doubt whatsoever that the possession or control
of a vehicle plays a vital role.”
(emphasis supplied by us)
This Court has observed in Godavari Finance Company (supra) that
insurance company in such a case becomes a necessary party as it would
have to reimburse the owner.
31. In Uttar Pradesh State Road Transport Corporation v. Kulsum &
Ors., (2011) 8 SCC 142, this Court has considered the question of vehicle
given on hire by owner of the vehicle to UPSRTC with its existing and
running insurance policy. It was held that the UPSRTC have become the
owner of the vehicle during the specified period and vehicle having beenPage 23
23
insured at the instance of the original owner, it would be deemed that vehicle
was transferred alongwith insurance policy to UPSRTC. The insurer cannot
escape the liability to pay the compensation. The appeal preferred by
UPSRTC was allowed. The instant cases are more or less the same and the
decision of this Court in UPSRTC v. Kulsum (supra) also buttress the
submission raised by KSRTC. This Court has held as under:
“30. Thus, for all practical purposes, for the relevant period,
the Corporation had become the owner of the vehicle for the
specific period. If the Corporation had become the owner even
for the specific period and the vehicle having been insured at
the instance of original owner, it will be deemed that the vehicle
was transferred along with the insurance policy in existence to
the Corporation and thus the Insurance Company would not be
able to escape its liability to pay the amount of compensation.
31. The liability to pay compensation is based on a statutory
provision. Compulsory insurance of the vehicle is meant for the
benefit of the third parties. The liability of the owner to have
compulsory insurance is only in regard to third party and not to
the property. Once the vehicle is insured, the owner as well as
any other person can use the vehicle with the consent of the
owner. Section 146 of the Act does not provide that any person
who uses the vehicle independently, a separate insurance policy
should be taken. The purpose of compulsory insurance in the
Act has been enacted with an object to advance social justice.”
32. In HDFC Bank Limited v. Reshma & Ors., (2015) 3 SCC 679,
definition of owner under the provisions of Section 2(30) of the Act of 1988
came up for consideration before a bench of 3 judges of this Court. ThisPage 24
24
Court referred to the decisions of Godavari Finance Company (supra) and
Pushpa alias Leela & Ors. v. Shakuntala & Ors., (2011) 2 SCC 240 etc. in
which the question arose whether the liability to pay compensation amount
as determined by the Tribunal was of the purchaser of the vehicle alone or
whether the liability of the recorded owner of the vehicle was co-extensive.
This Court in HDFC Bank Limited v. Reshma & Ors.(supra) held thus:
“22. In the present case, as the facts have been unfurled, the
appellant Bank had financed the owner for purchase of the
vehicle and the owner had entered into a hypothecation
agreement with the Bank. The borrower had the initial
obligation to insure the vehicle, but without insurance he plied
the vehicle on the road and the accident took place. Had the
vehicle been insured, the insurance company would have been
liable and not the owner. There is no cavil over the fact that the
vehicle was the subject of an agreement of hypothecation and
was in possession and control of Respondent 2. The High Court
has proceeded both in the main judgment as well as in the
review that the financier steps into the shoes of the owner.
Reliance placed on Mohan Benefit (P) Ltd. V. Kachraji
Raymalji (1997) 9 SCC 103, in our considered opinion, was
inappropriate because in the instant case all the documents were
filed by the Bank. In the said case, the two-Judge Bench of this
Court had doubted the relationship between the appellant and
the respondent therein from the hire-purchase agreement. Be
that as it may, the said case rested on its own facts. In the
decision in Rajasthan SRTC v. Kailash Nath Kothari,(1997) 7
SCC 481 the Court fastened the liability on the Corporation
regard being had to the definition of the “owner” who was in
control and possession of the vehicle. Similar to the effect is the
judgment in National Insurance Co. Ltd. V. Deepa Devi, (2008)
1 SCC 414. Be it stated, in the said case the Court ruled that the
State shall be liable to pay the amount of compensation to the
claimant and not the registered owner of the vehicle and thePage 25
25
insurance company. In Pushpa v. Shakuntala case, (2011) 2
SCC 240 the learned Judges distinguished the ratio in Deepa
Devi on the ground that it hinged on its special facts and
fastened the liability on the insurer. In UPSRTC v. Kulsum,
(2011) 8 SCC 142, the principle stated in Kailash Nath Kothari
was distinguished and taking note of the fact that at the relevant
time, the vehicle in question was insured with it and the policy
was very much in force and hence, the insurer was liable to
indemnify the owner.
23. On a careful analysis of the principles stated in the
foregoing cases, it is found that there is a common thread that
the person in possession of the vehicle under the hypothecation
agreement has been treated as the owner. Needless to
emphasise, if the vehicle is insured, the insurer is bound to
indemnify unless there is violation of the terms of the policy
under which the insurer can seek exoneration.
24. In Purnya Kala Devi v. State of Assam, (2014) 14 SCC
142, a three-Judge Bench has categorically held that the person
in control and possession of the vehicle under an agreement of
hypothecation should be construed as the owner and not alone
the registered owner and thereafter the Court has adverted to
the legislative intention, and ruled that the registered owner of
the vehicle should not be held liable if the vehicle is not in his
possession and control. There is reference to Section 146 of the
Act that no person shall use or cause or allow any other person
to use a motor vehicle in a public place without insurance as
that is the mandatory statutory requirement under the 1988 Act.
In the instant case, the predecessor-in-interest of the appellant,
Centurion Bank, was the registered owner along with
Respondent 2. Respondent 2 was in control and possession of
the vehicle. He had taken the vehicle from the dealer without
paying the full premium to the insurance company and thereby
getting the vehicle insured. The High Court has erroneously
opined that the financier had the responsibility to get the
vehicle insured, if the borrower failed to insure it. The said term
in the hypothecation agreement does not convey that the
appellant financier had become the owner and was in control
and possession of the vehicle. It was the absolute fault of
Respondent 2 to take the vehicle from the dealer without full
payment of the insurance. Nothing has been brought on record
that this fact was known to the appellant financier or it was
done in collusion with the financier. When the intention of the
legislature is quite clear to the effect, a registered owner of the
vehicle should not be held liable if the vehicle is not in his
possession and control and there is evidence on record that
Respondent 2, without the insurance plied the vehicle in
violation of the statutory provision contained in Section 146 of
the 1988 Act, the High Court could not have mulcted the
liability on the financier. The appreciation by the learned Single
Judge in appeal, both in fact and law, is wholly unsustainable.”
This Court has held that even when there was an agreement of and
vehicle has been insured and agreement holder is treated an owner, the
insurer cannot escape the liability to make indemnification.
33. In view of the decision in HDFC Bank Limited v. Reshma & Ors.
(supra), the insurer cannot escape the liability, when ownership changes due
to the hypothecation agreement. In the case of hire also, it cannot escape the
liability, even if the ownership changes. Even though, KSRTC is treated as
owner under Section 2(30) of the Act of 1988, the registered owner
continues to remain liable as per terms and conditions of lease agreement
lawfully entered into with KSRTC.
34. In view of the aforesaid discussion, we hold that registered owner,
insurer as well as KSRTC would be liable to make the payment of
compensation jointly and severally to the claimants and the KSRTC in terms
of the lease agreement entered into with the registered owner would be
entitled to recover the amount paid to the claimants from the owner as
stipulated in the agreement or from the insurer.
35. The appeals are, accordingly, allowed. Parties to bear their own costs.
........................................CJI.
(H.L. Dattu)
New Delhi; ….......................................J.
October 27, 2015. (Arun Mishra)
Print Page
(supra), the insurer cannot escape the liability, when ownership changes due
to the hypothecation agreement. In the case of hire also, it cannot escape the
liability, even if the ownership changes. Even though, KSRTC is treated as
owner under Section 2(30) of the Act of 1988, the registered owner
continues to remain liable as per terms and conditions of lease agreement
lawfully entered into with KSRTC.
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.5293 OF 2010
Managing Director, K.S.R.T.C. ... Appellant
Versus
New India Assurance Co.Ltd. & Anr. ... Respondents
With
Civil Appeal No.6641 of 2010
MD Karnataka Road Transport Corpn. & Anr. … Appellants
Versus
Thippamma & Ors. … Respondents
Dated;October 27, 2015.
1. The questions involved in the appeals are whether in the wake of
lease agreement entered into by registered owner with Karnataka State Road
Transport Corporation (hereinafter referred to as the ‘KSRTC’), the
registered owner and insurer along with KSRTC can be fastened with the
liability to make payment to the claimants and whether KSRTC can recover
the amount from registered owner and its entitlement to seek
indemnification from insurer?
2. The facts giving rise to Civil Appeal No.5293 of 2010 reflect that the
accident in question was caused by the bus which was driven under the
control of KSRTC. The bus was owned by respondent no.2, T.M. Ganeshan,
insured by the New India Assurance Co. Ltd. Admittedly, an agreement
dated 28.2.2002 was entered into between the KSRTC and owner respondent
no.2. The MACT, Tumkur, Karnataka on 25.6.2007 allowed the claim
petition preferred by the claimants and awarded a sum of Rs.4,09,000/- with
interest @ 6% p.a.
3. In view of the agreement between KSRTC and the owner of the bus,
the liability was fastened upon the owner and the insurer of the vehicle
jointly and severally to make the payment of compensation, not on KSRTC.
Aggrieved thereby, the insurer preferred an appeal before the High Court of
Karnataka. The same has been allowed by the impugned judgment and
order dated 20.2.2009. The High Court has allowed the appeal filed by the
insurer and held that the liability to make the payment of compensation is
that of KSRTC alone. Aggrieved thereby, the KSRTC has come up in the
appeal before us.
4. In Civil Appeal No.6641 of 2010, the bus was plied similarly on hire
agreement by the KSRTC. The Claims Tribunal has fastened the liability
jointly and severally upon the KSRTC and upon Internal Security Fund,
Bangalore. Aggrieved thereby, the appeal was preferred in the High Court
and the same has been dismissed. Hence, Civil Appeal No.6641 of 2010
has been filed in this Court.
5. It was submitted by Shri S.N. Bhat, learned counsel for the appellant
that the High Court has erred in fastening the liability upon the KSRTC. In
view of the lease agreement for hire entered into between the KSRTC and
the owner, the owner could not escape the liability to make the payment of
compensation. As such, the insurer was liable to indemnify the owner and to
make the payment of compensation. The liability could not have been
fastened upon the KSRTC. Learned counsel has placed reliance on the
decision of this Court in Uttar Pradesh State Road Transport Corporation v.
Kulsum & Ors., (2011) 8 SCC 142.
6. Shri Vishnu Mehra, learned counsel appearing on behalf of New India
Assurance Co. Ltd. contended that in view of the fact that the vehicle was
plied under the complete control and supervision of KSRTC, it cannot
escape from the liability to make the payment of compensation. He has
relied upon the decision of this Court in Rajasthan State Road Transport
Corporation v. Kailash Nath Kothari & Ors., (1997) 7 SCC 481 and the
definition of the owner under Section 2(30) of the Motor Vehicles Act, 1988
(hereinafter referred to as the ‘Act’). He has consequently submitted that
owner and insurer have rightly been exonerated by the High Court.
7. It was submitted on behalf of the claimants that they can recover the
compensation from the KSRTC, owner and insurer jointly and severally.
8. The owner has been defined under Section 2(30) of the Motor
Vehicles Act, 1988 (hereinafter referred to as the Act of 1988). The
definition in the Act of 1988 is extracted hereunder :
“2(30) “owner” means a person in whose name a motor
vehicle stands registered, and where such person is a minor, the
guardian of such minor, and in relation to a motor vehicle
which is the subject of a hire-purchase agreement, or an
agreement of lease or an agreement of hypothecation, the
person in possession of the vehicle under that agreement;”
9. The definition of owner under Section 2(19) of the Motor Vehicles
Act, 1939 read as under:-
“2(19) "owner" means, where the person, in possession of a
motor vehicle is a minor, the guardian of such minor, and in
relation to a motor vehicle which is the subject of a hire
purchase agreement, the person in possession of the vehicle
under that agreement.”
10. Under the Act of 1988, the owner means a registered owner and where
the agreement on hire-purchase or an agreement of hypothecation has been
entered into or lease agreement, the person in possession of the vehicle is
treated as an owner.
11. Section 146 of the Act of 1988 prescribe the necessity for insurance
against third party risk. Motor vehicle cannot be used in a public place
without policy of insurance complying with the requirement of Chapter X1.
Exemption has been carved out to the vehicles owned by the Central or State
Governments and used for government purposes. Under sub-Section (3) of
Section 146, it is open to the appropriate Government to exempt the vehicle
owned by the Central or State Governments if it is used for Government
purposes or any local authority or any State transport undertaking.
12. Section 147 of the Act of 1988 deals with the requirements of policy
and limits of liability. The statutory requirement under Section 147 is that
policy of insurance must be a policy which is issued by authorised Insurer
and insures the person or class of persons specified in the policy to thePage 6
6
extent specified in sub-section (2)(i) against any liability which may be
incurred by him in respect of the death of or bodily injury to any person,
including owner of the goods or his authorised representative carried in the
vehicle or damage to any property of a third party caused by or arising out of
the use of the vehicle in a public place; and (ii) 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.
13. Certain exception have been carved out in the proviso to sub-section
(1) of section 147. It is contained in proviso (ii) that the policy shall not be
required to cover any contractual liability. Limits of the liability have been
provided in Section 147(2). The liability under Section 147(2)(1)(b) is the
amount of liability incurred and with respect to any damage to any property
of a third party, a limit of Rs.6,000/-. Section 147(5) provides that
notwithstanding anything contained in any law for the time being in force,
an insurer shall be liable to indemnify the person or classes of persons
specified in the policy in respect of any liability which the policy purports to
cover in the case of that person or those classes of persons.
14. Section 157 of the Act 1988 deals with the deemed transfer of
certificate of insurance. Provisions of Section 157 are as under:Page 7
7
“157. Transfer of certificate of insurance.—
(1) Where a person in whose favour the certificate of insurance
has been issued in accordance with the provisions of this
Chapter transfers to another person the ownership of the motor
vehicle in respect of which such insurance was taken together
with the policy of insurance relating thereto, the certificate of
insurance and the policy described in the certificate shall be
deemed to have been transferred in favour of the person to
whom the motor vehicle is transferred with effect from the date
of its transfer.
(2) The transferee shall apply within fourteen days from the
date of transfer in the prescribed form to the insurer for making
necessary changes in regard to the fact of transfer in the
certificate of insurance and the policy described in the
certificate in his favour and the insurer shall make the necessary
changes in the certificate and the policy of insurance in regard
to the transfer of insurance.”
It is apparent from Section 157(1) of the Act of 1988 that certificate
shall be deemed to have been transferred in favour of the person to whom
the motor vehicle is transferred with effect from the date of its transfer.
Section 157(2) of the Act provides that the transferee to apply within 14 days
from the date of transfer in the prescribed form to make necessary changes
in the certificate of insurance.
15. Before dilating further, we deem it appropriate to advert to the certain
clauses in the lease agreement on the basis of which vehicles are plied onPage 8
8
hire by the KSRTC. The owner of the private bus has to provide new bus to
KSRTC for the purpose of hire.
16. As per clause 6, the owner of the private bus to discharge statutory
liability. Clauses 6(i) and (ii) of lease agreement are quoted below:
“6(i) In case the owner of the private bus defaults in the
discharge of any of his statutory liability, KSRTC reserves the
right to deduct such amounts from the amount payable to the
owner as it is sufficient to discharge the liability, and if the
liability is more than the amounts payable by KSRTC to the
owner, the owner alone shall be liable to discharge the liability
and/or to make good the amount to KSRTC, if discharged by
KSRTC.
6(ii) If because of any default by the bus owner or by his/her
drivers/other employees, agent representative, any liability
comes on KSRTC, the KSRTC has the right to recover the
amount either from the bills payable or the security deposit and
to take further steps to recover the balance from the private
owner by any lawful means.”
17. The Conductor was to be provided under clause 7(iv) by the KSRTC
and was entitled to collect the fare and luggage charges etc. for and on
behalf of KSTRC.
18. As per clause 8, Drivers were to be engaged and provided by the
owner. Salary etc. was also to be paid by the owner and is subject to otherPage 9
9
conditions such as they should not have been dismissed from the services of
the Central Government etc. and should possess requisite licence.
19. Clause 14 of lease agreement with respect to insurance coverage is
also relevant which is extracted as under:
“14. The owner of the private bus shall keep the hired bus
duly insured under a Motor Vehicle comprehensive insurance
police covering all risks and all such costs shall be born by the
owner of the private bus. In case of failure to have a valid
comprehensive insurance policy. The bus will not be used for
KSRTC’s operations and it will be deemed that the bus has not
been made available to KSRTC for scheduled operations, with
all consequent of effects. The insurance shall cover
61passengers.”
20. Clause 16 relating to liability as to accidents is also important for the
purpose of decision of the case. Clauses 16(a) (b) and (c) are extracted as
under:-
“(a) The owner of the bus alone shall be solely liable for
any claim arising out of any accident, damages or loss or hurt
caused during the operation of the bus. The KSRTC shall not
be liable for any claims arising out of the use of the buses,
including claims made in connection with the impurities or loss
of life sustained by passengers, bus crew or any other road user
or to any property/person. Besides, all tortuous liability if any,
shall be borne by the owner or the insurer of the vehicle
themselves. However the accidents should be reported to the
KSRTC office/Depot.Page 10
10
(b) KSRTC may make payment of ex-gratia amount to
the victims in event of accident of such private hired buses
while on KSRTC operations as per the KSRTC’s prevailing
norms which shall be recovered from any amounts due to the
owner of such private buses or from security Deposit etc.
Further, the owner of such private bus should make prompt
payment of ‘no fault liability’ or any other claim under the law
for such accident victims. In case KSRTC is compelled to
make such payment on behalf of the owner of private buses, it
shall be recovered from any amount due to the owner by
KSRTC or receivable to him from Insurance Company or other
debtors etc. In case of non-payment to non-recovery of such
amount by KSRTC within 15 days, interest at 15% per annum
shall also be recoverable. For delays beyond 30 days KSRTC
may amount or adjustment thereof towards hire charges
payable.
(c) It shall be the responsibility of the owner of the
private bus to produce at his own cost, the driver/bus before the
court of ……… and before the police authorities whenever
required in case of accident or any other contingencies or on
order or directions by the Judicial Or Executive authorities
……. charges shall be payable by KSRTC in such cases.”
It is apparent from clause 16(a) that in case of accident claim, the
KSRTC shall not be liable for any claim arising out of use of buses including
loss of life sustained by passengers or any other user or to any
property/person. If KSRTC makes any ex gratia payment in the case of
accident, the same shall be recovered from any amount due to the owner in
case KSRTC is made liable to make payment of compensation on behalf ofPage 11
11
private buses it shall be recovered from any amount due to the owner by
KSRTC or receivable to him from Insurance Company etc.
21. Clauses 17, 18, 19 and 20 are also relevant they are extracted below:
“17. The KSRTC shall not be liable for any loss caused
to the buses hired, at any point of time including during the
period of agitations, strikes, accidents, natural calamities etc.
18. The owner of the private bus shall be liable for shall
alone discharge or meet all claims including fines and penalties
arising out of violation of traffic Rules, and Regulations,
Statutes, Acts, Rules and Regulations etc., in force for act of
omissions or commissions committed either by his/her drivers
or by any other person not authorised to drive. The owner of
the private bus shall be liable and shall meet and discharge any
claim for compensation or damages on account of tortuous
liability.
19(a) The owner of the private bus shall provide and
make available bus/buses as per the contract to KSRTC on all
days or operation in time as per the schedule departing time and
also as so as to cover the entire schedule Kms. Duty.
(b) The owner of the private bus shall not withdraw any
bus from the operation except with advance notice before 24
hours and with prior written consent of the depot manager
concerned of KSRTC to do so. In case any violation of this
clause, the owner shall be liable for imposition of penalties by
the KSRTC.
20(1)(a) The KSRTC on its part agrees to pay hire
charges to the owner at the rates inculcation in the hiring rate
charts at Annexure A1 and A2, subject to the rules, terms and
conditions of the contract. The hiring rate applicable shall bePage 12
12
based on the schedule Kms. of the route allotted to the hired
bus, except as otherwise provided herein.”
22. The main question for consideration is whether the registered owner
and insurer can escape the liability in view of the provisions contained in the
Act and in view of the aforesaid terms and conditions of the lease
agreement. The question also arise whether claimants can also recover the
amount from KSRTC.
23. The High Court has held that actual control of the bus was with the
KSRTC and the driver was driving the bus under its control. Relying upon
the decisions in National Insurance Co. Ltd. V. Deepa Devi & Ors., (2008) 1
SCC 414 and Rajasthan State Road Transport Corporation v. Kailash Nath
Kothari & Ors., (1997) 7 SCC 481, it was held that KSRTC to be the owner
under Section 2(30) of the Act. There is no liability of the registered owner
as such insurer cannot be saddled with liability to indemnify. Hence, the
registered owner and the insurer have been exonerated. The KSRTC has
been fastened with the liability.
In our opinion, decision of High Court is not sustainable. The
provisions contained in the Act are clear. No vehicle can be driven without
insurance as provided in Section 147 whereas clause 14 of lease agreementPage 13
13
between KSRTC and the owner clearly stipulate that it shall be the liability
of the owner to provide the comprehensive insurance covers for all kind of
accidental risks to the passengers, other persons/property. The provisions of
said clause of the agreement are not shown to be opposed to any provision in
the Contract Act or any of the provisions contained under the Act of 1988.
Hiring of public service vehicles is not prohibited under any of the
provisions of the aforesaid laws. It could not be said to be inconsistent user
by KSRTC. The agreement is not shown to be illegal in any manner
whatsoever nor shown to be opposed to the public policy.
24. The policy of insurance is contractual obligation between the insured
and the insurer. It has not been shown that while entering into the aforesaid
agreement of lease for hiring the buses, any of the provisions contained in
the insurance policy has been violated. It has not been shown that owner
could not have given bus on hire as per any provision of policy. It was the
liability of the registered owner to provide the bus regularly, to employ a
driver, to make the payment of salary to the driver and the driver should be
duly licenced and not disqualified as provided in the agreement though
buses were to be plied on the routes as specified by the KSRTC and hiring
charges were required to be paid to the registered owner. In the absence of
any stipulation prohibiting such an arrangement in the insurance policy, wePage 14
14
find that in view of agreement of lease the registered owner has owned the
liability to pay. The insurer cannot also escape the liability.
25. Apart from that what is provided under Section 157 of the Act of 1988
is that the certificate of insurance and the policy described in the certificate
shall be deemed to have been transferred in favour of the person to whom
the motor vehicle is transferred with effect from the date of its transfer.
Even if there is a transfer of the vehicle by sale, the insurer cannot escape
the liability as there is deemed transfer of the certificate of insurance. In the
instant case it is not complete transfer of the vehicle it has been given on hire
for which there is no prohibition and no condition/policy of insurance as
shown to prohibit plying of vehicle on hire. The vehicle was not used for
inconsistent purpose. Thus, in the absence of any legal prohibition and any
violation of terms and conditions of the policy, more so, in view of the
provisions of Section 157 of the Act of 1988, we are of considered opinion
that the insurer cannot escape the liability.
26. Now, we come to the question of exclusion of contractual liability
under second proviso to Section 147(1). When we read provisions of
Section 147 with Section 157 together, it leaves no room for any doubt that
there is deemed transfer of policy in case of transfer of vehicle. Hence,
liability of insurer continues notwithstanding the contract of transfer ofPage 15
15
vehicle, such contractual liability cannot be said to be excluded by virtue of
second proviso to Section 147(1) of Act of 1988. Higher purchase
agreement, an agreement for lease or an agreement for hypothecation are
covered under Section 2(30) of the Act of 1988. A person in possession is
considered to be an owner of the vehicle under such agreements. In case
such contractual liability is excluded then anomalous results would occur
and financer under higher purchase agreement would be held liable and so
on. In our view, an agreement for lease on hire cannot be said to be contract
envisaged for exclusion under contractual liability in second proviso to
Section 147(1) of the Act of 1988. The High Court has erred in holding
otherwise.
27. The KSRTC can also be treated as owner for the purposes of Section
2(30) of the Act of 1988 plying the buses under lease agreement. The
insurance company admittedly has insured the vehicle and taken the
requisite premium and it is not a case set up by the insurer that intimation
was not given to the insurance company of the hiring arrangement . Even if
the intimation had not been given, in our opinion, the insurer cannot escape
the liability to indemnify as in the case of hiring of vehicle intimation is not
required to be given. It is only in the case of complete transfer of the vehicle
when change of registration particulars are required under Section 157 of thePage 16
16
Act, an intimation has to be given by the transferee for effecting necessary
changes in the policy. Even otherwise, that would be a ministerial act and
the insurer cannot escape the liability for that reason. When the KSRTC has
become the owner of the vehicle during the period it was on hire with it for
the purpose of Section 2(30) of the Act by virtue of provisions contained in
Section 157 of the Act, the insurance policy shall be deemed to be
transferred. As such, insurer is liable to make indemnification and cannot
escape the liability so incurred by the KSRTC.
28. In RSRTC v. Kailash Nath Kothari (supra), question of liability of
insurance company did not come up for consideration. The vehicle was
taken by RSRTC from its owner Sanjay Kumar and it was being plied on the
route by RSRTC. The case arose out of accident date 17.7.1981 under the
Act of 1939. The definition of second owner under section 2(19) of Act of
1939 came up for consideration before this Court, and conditions 4 to 7 and
15 of agreement between RSRTC and the owner, this Court held that vehicle
in question was in possession and actual control of RSRTC as such it
cannot escape from liability. Relevant portion of decision is extracted
below:-Page 17
17
“15. Conditions 4 to 7 and 15 of the agreement executed
between the RSRTC and the owner read:
“4. The Corporation shall appoint the conductor for the
operation of the bus given on contract by the second party and
the conductor of the Corporation shall do the work of issuing
tickets to the passengers, to receive the fare, to let all the
passengers get in and get out of the bus, to help the passengers
to load and unload their goods, to stop the bus at the stops fixed
by the Corporation and to operate the bus according to timetable.
5. The tickets, waybills and other stationery shall be
supplied by the Corporation to the said conductor of the
Corporation.
6. The driver of the bus shall have to follow all such
instructions of the conductor, which shall be necessary under
the rules for the operation of the bus.
7. The driver of the bus shall comply with all the orders of
the Corporation or of the officers appointed by the Corporation.
15. Upon the accident of the bus taking place the owner of
the bus shall be liable for the loss, damages and for the
liabilities relating to the safety of the passengers. The
Corporation shall not be liable for any accident. If the
Corporation is required to make any payment or incur any
expenses through some court or under some mutual
compromise, the Corporation shall be able to recover such
amounts from the owner of the bus after deducting the same
from the amounts payable to him.”
16. The admitted facts unmistakably show that the vehicle in
question was in possession and under the actual control of
RSRTC for the purpose of running on the specified route and
was being used for carrying, on hire, passengers by the RSRTC.
The driver was to carry out instructions, orders and directions
of the conductor and other officers of the RSRTC for operation
of the bus on the route specified by the RSRTC.
17. The definition of owner under Section 2(19) of the Act is
not exhaustive. It has, therefore to be construed, in a widerPage 18
18
sense, in the facts and circumstances of a given case. The
expression owner must include, in a given case, the person who
has the actual possession and control of the vehicle and under
whose directions and commands the driver is obliged to operate
the bus. To confine the meaning of “owner” to the registered
owner only would in a case where the vehicle is in the actual
possession and control of the hirer not be proper for the purpose
of fastening of liability in case of an accident. The liability of
the “owner” is vicarious for the tort committed by its employee
during the course of his employment and it would be a question
of fact in each case as to on whom can vicarious liability be
fastened in the case of an accident. In this case, Shri Sanjay
Kumar, the owner of the bus could not ply the bus on the
particular route for which he had no permit and he in fact was
not plying the bus on that route. The services of the driver were
transferred along with complete “control” to RSRTC, under
whose directions, instructions and command the driver was to
ply or not to ply the ill-fated bus on the fateful day. The
passengers were being carried by RSRTC on receiving fare
from them. Shri Sanjay Kumar was therefore not concerned
with the passengers travelling in that bus on the particular route
on payment of fare to RSRTC. Driver of the bus, even though
an employee of the owner, was at the relevant time performing
his duties under the order and command of the conductor of
RSRTC for operation of the bus. So far as the passengers of the
ill-fated bus are concerned, their privity of contract was only
with the RSRTC to whom they had paid the fare for travelling
in that bus and their safety therefore became the responsibility
of the RSRTC while travelling in the bus. They had no privity
of contract with Shri Sanjay Kumar, the owner of the bus at all.
Had it been a case only of transfer of services of the driver and
not of transfer of control of the driver from the owner to
RSRTC, the matter may have been somewhat different. But on
facts in this case and in view of Conditions 4 to 7 of the
agreement (supra), the RSRTC must be held to be vicariously
liable for the tort committed by the driver while plying the bus
under contract of the RSRTC. The general proposition of law
and the presumption arising therefrom that an employer, that is
the person who has the right to hire and fire the employee, is
generally responsible vicariously for the tort committed by thePage 19
19
employee concerned during the course of his employment and
within the scope of his authority, is a rebuttable presumption. If
the original employer is able to establish that when the servant
was lent, the effective control over him was also transferred to
the hirer, the original owner can avoid his liability and the
temporary employer or the hirer, as the case may be, must be
held vicariously liable for the tort committed by the employee
concerned in the course of his employment while under the
command and control of the hirer notwithstanding the fact that
the driver would continue to be on the payroll of the original
owner. The proposition based on the general principle as
noticed above is adequately rebutted in this case not only on the
basis of the evidence led by the parties but also on the basis of
Conditions 6 and 7 (supra), which go to show that the owner
had not merely transferred the services of the driver to the
RSRTC but actual control and the driver was to act under the
instructions, control and command of the conductor and other
officers of the RSRTC.
18. Reliance placed by learned counsel for the appellant on
Condition No. 15 of the agreement (supra) in our view is
misconceived. Apart from the fact that this clause in the
agreement between the owner and the RSRTC, to the extent it
shifts the liability for the accident from the RSRTC to the
owner, may be against the public policy as opined by the High
Court, though we are not inclined to test the correctness of that
proposition of law because on facts, we find that RSRTC cannot
escape its liability to pay compensation. The second part of
Condition No. 15 makes it abundantly clear that the RSRTC did
not completely shift the liability to the owner of the bus because
it provided for reimbursement to it in case it has to pay
compensation arising out of an accident. The words “if the
Corporation is required to make any payment or incur any
expenses through some court or under some mutual
compromise, the Corporation shall be able to recover such
amounts from the owner of the bus after deducting the same
from the amounts payable to him” in the later part of Condition
No. 15 leave no ambiguity in that behalf and clearly go to show
the intention of the parties. Thus, RSRTC cannot escape its
liability under Condition No. 15 of the agreement either. Thus,Page 20
20
both on facts and in law the liability to pay compensation for
the accident must fall on the RSRTC.”
It is apparent that question of the liability of the insurer did not come up
for consideration and also the relevant statutory provisions relating thereto in
aforesaid decision. This Court, considering clause 16 of the agreement
entered into by RSRTC and owner, held that RSRTC did not completely
shift the liability to the owner of the bus in case it has to pay compensation
arising out of an accident. In the instant cases also there are certain clauses
referred to above which indicate that if the KSRTC has to make the
payment, it can recover the same from the owner out of the amount payable
by it or from the amount payable by the insurer to the owner. On the
strength of decision in RSRTC v. Kailash Nath Kothari (supra), the KSRTC
being in actual control of the vehicle would also be liable to make the
compensation, however, in our opinion it can recover the amount from the
registered owner or insurer, as the case may be. In fact of the case, vis-à-vis,
the claimants’ liability would be joint and several upon the KSRTC,
registered owner and the insurer.
29. In National Insurance Co. v. Deepa Devi (supra), vehicle was under
requisition by the State Government and that possession on requisition was
not covered by the definition of the owner under section 2(30) in the Act ofPage 21
21
1988 or the Act of 1939. It was held by this Court as the Motor Vehicles Act
did not envisage such a situation. Owner in such a case has to be understood
from common sense point of view. Thus, the State was held liable to make
the payment of compensation. The question was altogether different in the
aforesaid case.
30. In Godavari Finance Company v. Degala Satyanarayanamma & Ors.,
(2008) 5 SCC 107, definition of owner came up for consideration. It was
held that the name of the financer was incorporated in the registration book
as owner. The respondent was held to be owner of the vehicle which was
purchased by him on being financed by Godavari Finance Company. The
financer could not be held liable to make the payment of compensation as
definition of the owner in the Act of 1939 is a comprehensive one as vehicle
which is the subject matter of hire purchase agreement, the person in
possession of the vehicle under that agreement shall be the owner. Thus, the
name of the financer in the certificate would not be decisive for
determination as to who was the owner of the vehicle. In the case of hire
purchase agreement, financer cannot ordinarily be treated to be the owner
and the person in possession is liable to pay damages for the motor
accident. This Court has held thus:Page 22
22
“15. An application for payment of compensation is filed
before the Tribunal constituted under Section 165 of the Act for
adjudicating upon the claim for compensation in respect of
accident involving the death of, or bodily injury to, persons
arising out of the use of motor vehicles, or damages to any
property of a third party so arising, or both. Use of the motor
vehicle is a sine qua non for entertaining a claim for
compensation. Ordinarily if driver of the vehicle would use the
same, he remains in possession or control thereof. Owner of the
vehicle, although may not have anything to do with the use of
vehicle at the time of the accident, actually he may be held to
be constructively liable as the employer of the driver. What is,
therefore, essential for passing an award is to find out the
liabilities of the persons who are involved in the use of the
vehicle or the persons who are vicariously liable. The insurance
company becomes a necessary party to such claims as in the
event the owner of the vehicle is found to be liable, it would
have to reimburse the owner inasmuch as a vehicle is
compulsorily insurable so far as a third party is concerned, as
contemplated under Section 147 thereof. Therefore, there
cannot be any doubt whatsoever that the possession or control
of a vehicle plays a vital role.”
(emphasis supplied by us)
This Court has observed in Godavari Finance Company (supra) that
insurance company in such a case becomes a necessary party as it would
have to reimburse the owner.
31. In Uttar Pradesh State Road Transport Corporation v. Kulsum &
Ors., (2011) 8 SCC 142, this Court has considered the question of vehicle
given on hire by owner of the vehicle to UPSRTC with its existing and
running insurance policy. It was held that the UPSRTC have become the
owner of the vehicle during the specified period and vehicle having beenPage 23
23
insured at the instance of the original owner, it would be deemed that vehicle
was transferred alongwith insurance policy to UPSRTC. The insurer cannot
escape the liability to pay the compensation. The appeal preferred by
UPSRTC was allowed. The instant cases are more or less the same and the
decision of this Court in UPSRTC v. Kulsum (supra) also buttress the
submission raised by KSRTC. This Court has held as under:
“30. Thus, for all practical purposes, for the relevant period,
the Corporation had become the owner of the vehicle for the
specific period. If the Corporation had become the owner even
for the specific period and the vehicle having been insured at
the instance of original owner, it will be deemed that the vehicle
was transferred along with the insurance policy in existence to
the Corporation and thus the Insurance Company would not be
able to escape its liability to pay the amount of compensation.
31. The liability to pay compensation is based on a statutory
provision. Compulsory insurance of the vehicle is meant for the
benefit of the third parties. The liability of the owner to have
compulsory insurance is only in regard to third party and not to
the property. Once the vehicle is insured, the owner as well as
any other person can use the vehicle with the consent of the
owner. Section 146 of the Act does not provide that any person
who uses the vehicle independently, a separate insurance policy
should be taken. The purpose of compulsory insurance in the
Act has been enacted with an object to advance social justice.”
32. In HDFC Bank Limited v. Reshma & Ors., (2015) 3 SCC 679,
definition of owner under the provisions of Section 2(30) of the Act of 1988
came up for consideration before a bench of 3 judges of this Court. ThisPage 24
24
Court referred to the decisions of Godavari Finance Company (supra) and
Pushpa alias Leela & Ors. v. Shakuntala & Ors., (2011) 2 SCC 240 etc. in
which the question arose whether the liability to pay compensation amount
as determined by the Tribunal was of the purchaser of the vehicle alone or
whether the liability of the recorded owner of the vehicle was co-extensive.
This Court in HDFC Bank Limited v. Reshma & Ors.(supra) held thus:
“22. In the present case, as the facts have been unfurled, the
appellant Bank had financed the owner for purchase of the
vehicle and the owner had entered into a hypothecation
agreement with the Bank. The borrower had the initial
obligation to insure the vehicle, but without insurance he plied
the vehicle on the road and the accident took place. Had the
vehicle been insured, the insurance company would have been
liable and not the owner. There is no cavil over the fact that the
vehicle was the subject of an agreement of hypothecation and
was in possession and control of Respondent 2. The High Court
has proceeded both in the main judgment as well as in the
review that the financier steps into the shoes of the owner.
Reliance placed on Mohan Benefit (P) Ltd. V. Kachraji
Raymalji (1997) 9 SCC 103, in our considered opinion, was
inappropriate because in the instant case all the documents were
filed by the Bank. In the said case, the two-Judge Bench of this
Court had doubted the relationship between the appellant and
the respondent therein from the hire-purchase agreement. Be
that as it may, the said case rested on its own facts. In the
decision in Rajasthan SRTC v. Kailash Nath Kothari,(1997) 7
SCC 481 the Court fastened the liability on the Corporation
regard being had to the definition of the “owner” who was in
control and possession of the vehicle. Similar to the effect is the
judgment in National Insurance Co. Ltd. V. Deepa Devi, (2008)
1 SCC 414. Be it stated, in the said case the Court ruled that the
State shall be liable to pay the amount of compensation to the
claimant and not the registered owner of the vehicle and thePage 25
25
insurance company. In Pushpa v. Shakuntala case, (2011) 2
SCC 240 the learned Judges distinguished the ratio in Deepa
Devi on the ground that it hinged on its special facts and
fastened the liability on the insurer. In UPSRTC v. Kulsum,
(2011) 8 SCC 142, the principle stated in Kailash Nath Kothari
was distinguished and taking note of the fact that at the relevant
time, the vehicle in question was insured with it and the policy
was very much in force and hence, the insurer was liable to
indemnify the owner.
23. On a careful analysis of the principles stated in the
foregoing cases, it is found that there is a common thread that
the person in possession of the vehicle under the hypothecation
agreement has been treated as the owner. Needless to
emphasise, if the vehicle is insured, the insurer is bound to
indemnify unless there is violation of the terms of the policy
under which the insurer can seek exoneration.
24. In Purnya Kala Devi v. State of Assam, (2014) 14 SCC
142, a three-Judge Bench has categorically held that the person
in control and possession of the vehicle under an agreement of
hypothecation should be construed as the owner and not alone
the registered owner and thereafter the Court has adverted to
the legislative intention, and ruled that the registered owner of
the vehicle should not be held liable if the vehicle is not in his
possession and control. There is reference to Section 146 of the
Act that no person shall use or cause or allow any other person
to use a motor vehicle in a public place without insurance as
that is the mandatory statutory requirement under the 1988 Act.
In the instant case, the predecessor-in-interest of the appellant,
Centurion Bank, was the registered owner along with
Respondent 2. Respondent 2 was in control and possession of
the vehicle. He had taken the vehicle from the dealer without
paying the full premium to the insurance company and thereby
getting the vehicle insured. The High Court has erroneously
opined that the financier had the responsibility to get the
vehicle insured, if the borrower failed to insure it. The said term
in the hypothecation agreement does not convey that the
appellant financier had become the owner and was in control
and possession of the vehicle. It was the absolute fault of
Respondent 2 to take the vehicle from the dealer without full
payment of the insurance. Nothing has been brought on record
that this fact was known to the appellant financier or it was
done in collusion with the financier. When the intention of the
legislature is quite clear to the effect, a registered owner of the
vehicle should not be held liable if the vehicle is not in his
possession and control and there is evidence on record that
Respondent 2, without the insurance plied the vehicle in
violation of the statutory provision contained in Section 146 of
the 1988 Act, the High Court could not have mulcted the
liability on the financier. The appreciation by the learned Single
Judge in appeal, both in fact and law, is wholly unsustainable.”
This Court has held that even when there was an agreement of and
vehicle has been insured and agreement holder is treated an owner, the
insurer cannot escape the liability to make indemnification.
33. In view of the decision in HDFC Bank Limited v. Reshma & Ors.
(supra), the insurer cannot escape the liability, when ownership changes due
to the hypothecation agreement. In the case of hire also, it cannot escape the
liability, even if the ownership changes. Even though, KSRTC is treated as
owner under Section 2(30) of the Act of 1988, the registered owner
continues to remain liable as per terms and conditions of lease agreement
lawfully entered into with KSRTC.
34. In view of the aforesaid discussion, we hold that registered owner,
insurer as well as KSRTC would be liable to make the payment of
compensation jointly and severally to the claimants and the KSRTC in terms
of the lease agreement entered into with the registered owner would be
entitled to recover the amount paid to the claimants from the owner as
stipulated in the agreement or from the insurer.
35. The appeals are, accordingly, allowed. Parties to bear their own costs.
........................................CJI.
(H.L. Dattu)
New Delhi; ….......................................J.
October 27, 2015. (Arun Mishra)
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