Case research

Concerning Motor Vehicle Insurance Cases

M.A. 489/2024: Magma HDI General Insurance Company Ltd v. Amita Singh & Ors.

M.A. 7677/2023: Ajeet Shukla v. Amita Singh & Ors.

Case Brief:

The husband of Respondent no 1 (Amita Singh) lost his life in a fatal car accident. The vehicle
was insured by the Appellant and during the time of the accident driven by his friend (Ajeet
Shukla) who was also the owner of the vehicle. Moreover, it must be brought to attention that
the friend/owner of the vehicle had breached the terms of the insurance agreement and there
exist some discrepancies in the FIR about how the accident happened. After due deliberation,
the tribunal awarded compensation to the Respondents which is to be given by the insurance
agency along with stating the condition that the insurance company can pursue the friend/owner
for the recovery of the amount later. Dissatisfied by the award the appellant and the vehicle
owner has raised two different appeals (bunched together) in this Hon’ble Court raising
different contentions.

Issue raised by both Appellants:

1. Whether the learned tribunal erred in awarding the compensation?

Research:

Prominent Section: Section 149 of the MVA and no-fault liability under Section 163A of the
MVA.

Similar material averments Cases:

1. Shamanna & Anr. v. Divisonal Manager, Oriental Insurance Co. Ltd. & Ors.
(2018) 9 SCC 650

On April 14, 2008, Shankareppa Pattar, son of the appellant claimants, was traveling in a jeep
(Registration No. KA 22 M 3805) when the door suddenly opened due to negligent driving. He
was thrown from the vehicle, sustained severe injuries, and subsequently died. The driver did
not possess a valid driving license at the time of the accident, which constituted a violation of
the insurance policy terms. The Claims Tribunal awarded compensation of Rs. 3,55,500 with
6% interest per annum from the date of the claim petition. The Tribunal directed the insurance
company to pay the compensation to the claimants while granting the company liberty to
recover the amount from the vehicle owner due to the policy violation.

The insurance company appealed the Tribunal’s decision to the High Court. The High Court
enhanced the compensation to Rs. 4,94,700 but set aside the “pay and recover” direction to the
insurance company. Instead, it made the vehicle owner directly liable for payment, citing that
only the Supreme Court had the power under Article 142 of the Constitution to issue such
directions. On further appeal, the Supreme Court considering precedents like Swaran Singh
and National Insurance Co. Ltd. v. Parvathneni, held that The High Court was correct in
enhancing the compensation amount to Rs. 4,94,700. However, the High Court erred in setting
aside the “pay and recover” directive. The Supreme Court reinstated the Tribunal’s original
direction requiring the insurance company to pay the compensation with the right to recover it
from the vehicle owner. The Court further clarified that in third-party risk cases, the insurer
must first pay the compensation to the victims and can then recover it from the insured if there
was a breach of policy conditions.

Landmark Cases:

1. National Insurance Co. Ltd. v. Swaran Singh (2004) 3 SCC 297

Pay and Recover principle was affirmed in this case. Also, it was stated that this should
no go down as a precedent.

It established that Insurance companies must pay compensation to third parties, which can later
be recovered from the insured if policy conditions were breached, as the protection of innocent
third parties is paramount.

The case involved multiple appeals where National Insurance Company Ltd. challenged
various awards by Motor Accident Claims Tribunals. The central issue was whether insurers
could deny liability based on the driver not having a valid license or having the wrong type of
license. This case involved an extensive analysis Chapter XI of the Motor Vehicles Act, 1988,
which mandates compulsory third-party insurance for motor vehicles. This legislation aims to
protect accident victims by ensuring they receive compensation, following similar principles
from British law that influenced Indian motor vehicle insurance regulations.

The Court established several important principles:

First, insurance companies can only defend claims on specific statutory grounds listed in
Section 149(2) of the Act. These primarily relate to breach of policy conditions or fraud in
obtaining the policy.

Second, when arguing that a driver was not “duly licensed,” the insurance company must prove
not just the absence of a valid license, but also that the vehicle owner was negligent in verifying
the driver’s credentials. Minor technical breaches, like an expired license that could have been
renewed, are not sufficient grounds to deny liability.

Third, regarding learner’s licenses, the Court held that these constitute valid licenses under the
Act. An insurer cannot deny liability merely because the driver held a learner’s license rather
than a permanent one.

Fourth, for cases involving wrong category licenses (e.g., having a car license but driving a
truck), the insurer must prove that this breach materially contributed to the accident. Technical
violations alone are insufficient to avoid liability.

a. Initial Liability (Paras 48-51):

- Para 48: Discusses Section 147(3) and remedy conferred upon judgment against vehicle user

- Para 49, 50, 51: Establishes that violation of law by the assured/driver doesn’t automatically
absolve the insurer’s liability to third party

b. Burden of Proof (Paras 66-69):

- Para 66: States that once assured proves the accident is covered by compulsory insurance,
insurer must prove exception

- Para 67: Cites MacGillivray on Insurance Law regarding burden of proof on insurers

- Para 68-69: Establishes that proposition of law is no longer res integra - insurance company
must prove breach by cogent evidence

c. Primary Liability & Recovery Rights (Paras 104-108):

- Para 104: Establishes that liability to satisfy decree at first instance has been holding field

- Para 105: Cites doctrine of stare decisis

- Para 106-108: Discusses well-settled rule about initial payment and recovery rights

d. Insurer’s Defense Rights (Paras 81-83):

- Para 81: Discusses insurer’s right to raise defenses under Section 149

- Para 82: Explains proviso to Section 149(4)

- Para 83: Addresses requirement for full effect of Section 149(5)

e. Key Summary on Liability (Para 107):

“The Tribunal and the court must, however, exercise their jurisdiction to issue such a direction
upon consideration of the facts and circumstances of each case and in the event such a direction
has been issued, despite arriving at a finding of fact to the effect that the insurer has been able
to establish that the insured has committed a breach of contract of insurance as envisaged
under sub-clause (ii) of clause (a) of sub-section (2) of Section 149 of the Act, the insurance
company shall be entitled to realise the awarded amount from the owner or driver of the
vehicle...”

f. Execution & Recovery (Paras 110-111):

- Para 110: Addresses provisions of sub-sections (4) & (5) enabling insurer recovery

- Para 111: Conclusion dismissing petitions but maintaining recovery rights

2. United India Insurance Co. Ltd. v. Lehru & Ors (2003) 3 SCC 338

Bolstered the pay and recover principle.

Passenger death in an insured vehicle where the issue was the breach of the condition of the
insurance agreement as the driver’s licence was fake.

Established that insurance companies must compensate third-party victims even if there’s a
breach of policy terms. Allowed insurance companies to recover from the owner/driver

“Under Section 149(1), Motor Vehicles Act, 1988 the insurance company must pay to the
person entitled to the benefit of the decree, notwithstanding that it has become “entitled to
avoid or cancel or may have avoided or cancelled the policy”. The words “subject to the
provisions of this section” mean that the insurance company can get out of the liability only on
grounds set out in Section 149. Section 149(7) does not state anything more or give any higher
right to the insurance company. On the contrary, the wording of that provision viz. “no insurer
shall be entitled to avoid his liability” indicates that the legislature wanted to clearly indicate
that insurance companies must pay unless they are absolved of liability on a ground specified
in Section 149(2). This is further clear from Section 149(4). Section 149(5) also shows that
the insurance company must first pay, then it can recover. (Para 17)

In order to avoid liability under Section 149(2)(a)(ii) it must be shown that there was a
“breach” on the part of the insured. To hold otherwise would lead to absurd results. The aim
and purpose of the provision for compulsory third-party risk is that an insurance company
would be available to pay. The business of the company is insurance. In all businesses there is
an element of risk. All persons carrying on business must take risks associated with that
business. Thus it is equitable that the business which is run for making profits also bears the
risk associated with it. At the same time innocent parties must not be made to suffer loss. These
provisions meet these requirements. Therefore, it has to be held that in order to avoid liability
it is not sufficient to show that the person driving at the time of accident was not duly licensed.
The insurance company must establish that the breach was on the part of the insured. (Para
18)

Punishment under S. 180, held, can be imposed only if the owner or person in charge of the
vehicle causes or permits driving by a person not duly licensed but not otherwise — S.
149(2)(a)(ii) recognises this position and absolves the insurer only where there is a breach by
the insured.” (Para 19)

3. National Insurance Co. Ltd. v. Nicolletta Rohtagi & Ors. (2002) 7 SCC 456

It discusses the defence limits of insurance companies.

This case law from 2002 addresses a significant question in motor vehicle insurance law in
India: whether an insurance company can file an appeal against a Motor Accident Claims
Tribunal award when the insured party has not appealed.

The case involves several appeals where insurance companies challenged tribunal awards
regarding accident compensation. The central issue was whether insurers could appeal matters
like the quantum of compensation or findings of negligence when the insured party hadn’t filed
an appeal.

The Supreme Court traced the historical development of motor vehicle insurance law, noting
its origins in English legislation aimed at protecting accident victims. The Court emphasized
that the primary purpose of compulsory motor vehicle insurance is to protect accident victims,
not to promote insurance companies’ interests. The Court examined relevant sections of the
Motor Vehicles Act, particularly Sections 149, 170, and 173, determining that:
1. Insurance companies can only defend claims on specific statutory grounds listed in Section
149(2) of the Act, such as policy breaches or fraud in obtaining the policy.

2. Under Section 170, insurers can contest claims on broader grounds only if the tribunal finds
either:

- Collusion between the claimant and the insured

- The insured’s failure to contest the claim

3. The right to appeal is purely statutory and cannot be expanded beyond these limitations, even
if the insured hasn’t filed an appeal.

The Court concluded that an insurance company cannot file an appeal challenging the quantum
of compensation or findings of negligence unless the appeal is based on specific grounds
permitted under Section 149(2). The insurer obtained permission under Section 170 to contest
the claim on broader grounds, or there is evidence of fraud in obtaining the award.

Thus, the above cases consistently establish that:

- Insurance companies must first pay compensation to third-party victims

- They can later recover from the owner/driver if policy terms were breached

- The protection of innocent third parties takes precedence over contractual terms

- Tribunals should ensure quick relief to victims’ families

Madhya Pradesh Cases:

1. Magan vs. Mansukhbhai, M.A. No 449/2007 (similar material averments)

On September 17, 2004, at approximately 6:00 AM, a truck (registration no. GJ-3Y 8395)
owned by Respondent No. 2 and insured by Respondent No. 3 was involved in an accident.
The truck, being driven rashly and negligently, struck 12 people while passing through village
Sahila, resulting in 11 deaths and grievous injuries to one Harisingh. The Additional MACT
(Motor Accident Claims Tribunal) at Jobat heard claim petitions filed by the legal
representatives of the deceased and injured parties. The Tribunal awarded compensation in
most cases but exonerated Respondent No. 3 (the insurance company) on the grounds that the
offending vehicle was a goods vehicle carrying passengers in violation of policy terms.

The case centered on several critical issues:

1. The validity of dismissing claims solely based on names not appearing in the FIR

2. The adequacy of compensation amounts awarded

3. The liability of the insurance company in cases where goods vehicles carry passengers

4. The admissibility and weight of FIR evidence in claim proceedings

The Court made several significant determinations:

1. Regarding Dismissed Claims: The Court found that dismissing claims merely because names
were not mentioned in the FIR was improper, especially when other evidence supported the
claims.

2. Compensation Enhancement: The Court determined that many of the awarded amounts were
inadequate and enhanced compensation in numerous cases, providing detailed breakdowns of
revised amounts.

3. Insurance Company's Liability: The Court held that when passengers were being transported
in violation of policy terms, the insurance company should still pay compensation to third-
party victims but could recover the amount from the vehicle owner.

4. Evidence Standards: The Court clarified that strict rules of evidence do not apply to Motor
Accident Claims Tribunals, and FIRs can be considered along with other evidence.

Thus, the Court partially allowed the appeals confirming the liability of the insurance company
while preserving their right to recover from the vehicle owner

2. United India Assurance Co v. Sarojbai 2007 SCC OnLine MP 479

The facts are that Kajale was riding as a pillion passenger on a motorcycle when it collided
with a buffalo near Nirmal hospital. He sustained severe injuries and later died at Gokuldas
hospital in Indore. His wife Sarojbai and other claimants filed for compensation of Rs.
45,00,000 under Section 166 of the Motor Vehicles Act. The Claims Tribunal awarded Rs.
7,41,271 in compensation. The Insurance Company appealed this decision, arguing they should
not be liable since their policy did not cover pillion riders. However, the High Court dismissed
the Insurance Company's appeal for two main reasons. First, the Insurance Company had not
raised the pillion rider coverage issue either before the Tribunal or properly in their appeal.
They had only contested the claim initially by arguing the motorcycle driver lacked a valid
license, which was proven false. Second, since this ground was not raised earlier, the claimants
never had an opportunity to present evidence regarding the insurance coverage for pillion
riders. The Court held it would be unfair to allow this new argument at the appeal stage.

The Court slightly modified the compensation amount to Rs. 7,45,000 after considering factors
like loss of love and affection. This enhanced amount was to be paid to Sarojbai (claimant No.
1) with interest as awarded by the Tribunal.

The case establishes an important principle that insurance companies must raise coverage-
related defences at the initial tribunal stage rather than introducing them for the first time during
appeal. The Court prioritized procedural fairness to the claimants over technical policy
interpretation arguments raised belatedly.

3. Reliance General Insurance Co. Ltd. v. Karibai & Ors. 2020 SCC OnLine MP
4669

On September 3, 2010, a fatal accident occurred when Karulal, who was riding a motorcycle,
was hit from behind by a Scorpio SUV driven by Janu @ Jankilal. The SUV was using a fake
registration number (RJ-09-UA-5148) while its actual registration number was MH-02-JP-
1314. Karulal succumbed to his injuries, leaving behind his wife Karibai and minor children
as claimants. The vehicle had been stolen from Mumbai on June 11, 2010, with an FIR
registered at Kasturba Marg Police Station. At the time of the accident, the vehicle was being
used for illegal activities, carrying poppy straw, and was being driven with a false registration
number. The original owner had insured the vehicle with Reliance General Insurance for the
period March 13, 2010, to March 12, 2011.

The Motor Accident Claims Tribunal (MACT) awarded compensation of Rs. 5,10,000 with
interest to the claimants, directing the insurance company to pay. The insurance company
appealed this decision, arguing they were not liable since the vehicle was stolen and they had
already settled a theft claim with the original owner for Rs. 5,85,000. The High Court dismissed
the insurance company's appeal based on several key findings:

1. The insurance policy was valid and effective on the date of the accident and had never been
properly cancelled.

2. Under Section 157 of the Motor Vehicles Act, when the insurance company settled the theft
claim, they effectively became the owner of the vehicle.
3. The insurance premium collected included third-party risk coverage, making the company
liable for third-party claims regardless of the vehicle's theft status.

The court concluded that the insurance company was liable to pay compensation not only as
an insurer but also as the deemed owner of the vehicle. The appeal was dismissed with no order
as to costs, upholding the MACT's compensation award to the deceased's family.

This judgment emphasizes that insurance companies cannot escape third-party liability even in
cases involving stolen vehicles, particularly when they have collected third-party risk
premiums and become deemed owners through claim settlements.

Relevant Cases:

1. Manager, National Insurance Co. Ltd. v. Saju P. Paul & Anr. (2013) 2 SCC 41

Affirmed that gratuitous passengers will also be compensated. Imp.

This case concerned an accident that occurred on October 16, 1993, where Saju P. Paul, who
was employed as a driver with M/s P.L. Construction Company, was traveling as a spare driver
in a goods vehicle. The vehicle met with an accident at Nilackal due to rash and negligent
driving, resulting in Paul suffering injuries that left him permanently disabled. Paul filed a
claim petition before the Motor Accidents Claims Tribunal seeking compensation of Rs.
3,00,000. The insurance company opposed the claim, arguing that as a goods vehicle passenger,
Paul was not covered under the insurance policy. The Tribunal awarded the claimed amount,
making both the insurer and vehicle owner jointly liable. The insurance company appealed to
the Kerala High Court, which initially ruled in their favour. However, upon review, the Division
Bench allowed Paul’s petition and directed the insurance company to pay compensation with
9% interest.

The central question was whether the insurance company could be held liable to pay
compensation for injuries sustained by a spare driver traveling as a passenger in a goods vehicle
under Section 147 of the Motor Vehicles Act, 1988 (pre-1994 amendment).

The Supreme Court held that while the insurance company was not technically liable for a
gratuitous passenger in a goods vehicle under the pre-1994 law, considering the peculiar
circumstances of the case (including Paul’s 48-year age, permanent disability, and the 20-year
pendency), it directed the insurance company to pay and later recover the damages.

2. Lakhsmi Chand v. Reliance General Insurance (2016) 3 SCC 100

The appellant owned a Tata Motors goods-carrying vehicle insured with Reliance General
Insurance. On November 11, 2010, the vehicle was involved in an accident due to rash and
negligent driving by another vehicle. The appellant’s vehicle sustained damage, and he incurred
repair costs of Rs 1,64,033. When he filed a claim, the insurance company rejected it on the
grounds that the vehicle was carrying six passengers at the time of the accident, exceeding its
permitted capacity of 1+1. The appellant filed a complaint with the District Consumer Forum,
which ruled in his favour, directing the insurance company to settle 75% of the claim amount
plus interest and Rs 2,000 for deficient service. The insurance company appealed to the State
Commission, which reversed the District Forum’s decision. The National Commission upheld
the State Commission’s order, leading to this appeal before the Supreme Court

The apex Court held that insurance contracts must be strictly construed, with terms given their
precise meaning without additions or deletions based on equity. The Court further clarified that
when an insurance company seeks to avoid liability by claiming a policy breach, the burden of
proof lies with the insurer to establish, and the existence of the breach must be fundamental to
the contract having a causal connection between the breach and the loss.

The Court held that merely carrying additional passengers does not automatically constitute a
fundamental breach that would allow the insurer to avoid liability. The insurer must prove that
this breach directly contributed to causing the accident. Thus, restored the District Forum’s
judgment.

3. Oriental Insurance Company Ltd., Yavatmal v. Maroti S/O Yeshu Urwate and
Others (2020) 2 Mah LJ 242

On November 27, 2008, the deceased Shatrughan was traveling as a pillion rider on a
motorcycle when it collided with another motorcycle coming from the opposite direction. Both
vehicles were being driven rashly and negligently, resulting in Shatrughan’s death at the scene.
The deceased’s family filed a claim petition seeking compensation. The Motor Accident Claims
Tribunal awarded compensation of Rs. 3,59,000. The insurance company contested this on the
grounds that since no separate premium was paid for the pillion rider, they were not liable to
pay compensation. The High Court noted that the insurance company had not produced any
evidence before the Tribunal to establish its defence of non-payment of pillion rider premium.
The Court emphasized that the burden of proof lies on the insurance company to prove its
defence to avoid liability. Also, the Court considered that the insurance policy in question was
a comprehensive policy, as evidenced by the Policy Cover Note (Exhibit-39). The Court relied
heavily on the Supreme Court’s decision in Jagtar Singh alias Jagdev Singh v. Sanjeev Kumar
which clearly established that a comprehensive/package policy covers the insurer’s liability for
payment of compensation for vehicle occupants, unlike an “Act Policy.” Thus, the High Court
dismissed the insurance company’s appeal, holding that when a comprehensive policy is issued,
it is the duty of the insurance company to pay compensation to claimants. The Court ordered
that the compensation amount deposited before it be paid to the respondents along with accrued
interest.

4. Vasuki and Another v. Santhi and Another (2021) 16 SCC 730

The case arose from a motor accident claim filed by children of a deceased person. The High
Court of Kerala had dismissed their compensation claim because the vehicle belonged to their
mother and was driven by their father. The court had ruled that “personal accident coverage”
would not apply since the coverage couldn’t be extended to a driver who wasn’t a third party.

The central question was whether an insurance company's liability is limited in cases where the
vehicle owner has taken personal accident coverage and is either driving themselves or the
driver is their spouse.

The Motor Accident Claims Tribunal had assessed compensation at Rs. 3,16,500 with 9%
interest but placed the liability on the mother (vehicle owner) rather than the insurance
company. This decision was based on the view that insurance coverage doesn't extend to the
driver operating with the owner's permission. On further appeal, the Supreme Court made
several significant determinations:

1. The policy in question was categorical in nature, indemnifying personal accident claims of
both owner and driver.

2. The policy contained no cap on the compensation amount payable by the insurance company.

3. There was no condition in the policy stating that tariff fixed by Indian motor tariff would
apply to personal accident claims.

4. While a driver cannot be treated as a third party against the owner, when the insured has
taken personal accident coverage that covers themselves as driver or their spouse as driver, the
insurance company's liability would be unlimited.

Thus, the Supreme Court set aside the High Court's order thereby directing the insurance
company to pay the compensation awarded by MACT.
 5. Jagtar Singh v. Sanjeev Kumar & Ors. (2018) 15 SCC 189 (Imp.)

The case arose from an appeal challenging a Punjab and Haryana High Court order from 2010
that had absolved an insurer of liability and made the vehicle owner liable for compensation to
a gratuitous passenger. The core issue was whether insurance companies are bound to pay
compensation for occupants/gratuitous passengers in a private car, depending on whether the
policy is a “comprehensive policy”/”package policy” or just an “Act policy.”

The Supreme Court stated that all insurance companies are bound to pay compensation for
occupants/gratuitous passengers under a comprehensive/package policy. The IRDA (Insurance
Regulatory Authority) had issued clear directives since 1986 requiring insurance companies to
cover pillion riders and occupants under comprehensive policies. Thus, there is “no scintilla of
doubt” that a comprehensive/package policy covers the insurer’s liability for compensation to
occupants. An “Act policy” does not cover third-party risks for occupants, but if the policy is
comprehensive/package, such liability would be covered

Hence, the Supreme Court set aside the High Court’s judgment, and the matter was remitted
back for reconsideration of whether the policy in question was a “comprehensive/package
policy” or just an “Act policy”.

6. Cholamandlam M.S. General Insurance Co. Ltd. V. Poonam Gupta & Ors. 2024
SCC OnLine Bom 3252

On January 16, 2014, Prabin Kumar, aged 39, died in a motor vehicle accident when a dumper
collided with his motorcycle near Jain Temple, Bavdhan. The accident occurred due to the
dumper driver’s rash and negligent driving. Poonam Gupta (widow) filed a claim petition under
Section 166 of the Motor Vehicles Act seeking compensation of Rs. 1,81,00,000. The claim
was based on the deceased’s income tax returns. The Motor Accident Claims Tribunal (MACT),
Pune awarded Rs. 50,60,000 with 7.5% interest as a “pay and recover” award, directing the
insurance company to pay and recover from the vehicle owner. On appeal the High Court
directed the insurance company to deposit the enhanced amount within six weeks, maintaining
the “pay and recover” nature of the award.

7. Manuara Khatun &Ors. v. Rajesh Kumar Singh & Ors. (2017) 4 SCC 796

The case discusses the principle of Pay and Recover concerning gratuitous passengers.
Imp.
The case arose from a fatal motor vehicle accident that occurred on March 7, 2001. A Tata
Sumo vehicle carrying passengers collided head-on with a truck near Jorabat, resulting in the
deaths of Ismail Hussain and Nirod Prasad Mohanty, while other passengers sustained injuries.

The deceased’s families filed compensation claims before the Motor Accidents Claims
Tribunal, Nagaon. Manuara Khatun, wife of Ismail Hussain, claimed Rs. 55,20,400 for herself
and her five minor children. Similarly, Mamoni Saikia Mohanty, wife of Nirod Prasad
Mohanty, claimed Rs. 54,62,500 for herself and her three minor children.

The Tribunal partially allowed the claims, awarding Rs. 24,89,500 to Manuara Khatun and Rs.
24,09,500 to Mamoni Saikia Mohanty with 7.5% interest. However, the Tribunal held that since
the passengers were “gratuitous passengers” in a private vehicle (Tata Sumo), the insurer of the
Tata Sumo was not liable. The award was passed only against the owner of the Tata Sumo.

The claimants appealed to the High Court, arguing that the principle of “pay and recover”
should have been applied, requiring the insurer to pay the compensation and then recover it
from the vehicle owner. The High Court dismissed their appeals.

The Supreme Court, hearing the special leave petitions, allowed the appeals. The Court held
that the insurer (United India Insurance Co. Ltd.) of the Tata Sumo car should first pay the
awarded compensation to the claimants and then recover the amount from the vehicle owner
through execution proceedings. This decision was based on precedent established in previous
cases, particularly Saju P. Paul case (see 1) , where similar directions were issued for gratuitous
passengers.

The Court modified the impugned order accordingly, directing United India Insurance Co. Ltd.
to pay the awarded compensation to the claimants, with the right to recover the amount from
the owner of the Tata Sumo through execution proceedings.

8. Oriental Insurance Company Ltd. v. Suresh Gupthan 2017 SCC OnLine Ker
22782

Gratuitous Passengers. Imp.

On April 7, 2005, Suresh Gupthan sustained injuries in a motor vehicle accident while
travelling as a passenger in a private car (KL/2E 7303). The accident occurred when the driver,
driving rashly and negligently, hit a divider. Gupthan was immediately taken to the hospital for
treatment. Gupthan and other passengers filed claims before the Motor Accident Claims
Tribunal (MACT) at Ottapalam. The Tribunal passed a common award for both cases, granting
Rs. 32,100 to Gupthan and Rs. 15,400 to another injured passenger. The Tribunal directed
Oriental Insurance to satisfy the award. Oriental Insurance initially appealed the award through
MFA Nos. 1849 and 1851 of 2009. The High Court set aside the original award and remanded
the matter back to the Tribunal for fresh consideration.

The primary contention raised by Oriental Insurance was that Gupthan was a gratuitous
passenger in a private vehicle, and they had not collected an extra premium from the owner to
indemnify such liability.

The High Court examined the insurance policy (Ext.B1) and found that Oriental Insurance had
collected additional premiums, thus, the Court dismissed Oriental Insurance’s appeal, holding
that since they had collected additional premiums, they could not argue that Gupthan was
merely a gratuitous passenger with no coverage. The Court confirmed the Tribunal’s award,
finding no merit in the insurer’s arguments.

9. National Insurance Corporation Ltd. v. Kanti Devi and Ors. (2005) 5 SCC 789

In this case, the defence of LMV license was argued and denied by the Court. (Imp.
Similar facts)

The case arose from a vehicular accident on October 4, 1998, involving a Tata Tempo that
resulted in the death of Pradeep Kumar, who was 22 years old at the time. The vehicle was
allegedly being driven recklessly by Rohani Prasad. The vehicle belonged to Devender Kumar,
who had insured it with National Insurance Corporation Ltd. Mrs. Kanti Devi, the mother of
the deceased, filed a claim petition before the Motor Accidents Claims Tribunal (MACT),
Delhi. The MACT awarded her compensation of Rs. 2,24,800 with 8% interest from the date
of filing the claim petition. This award covered multiple periods between November 1998 and
April 2002. Neither the driver nor the vehicle owner appeared before the Tribunal. The insurer
argued before MACT that the driver did not possess a valid driving license for operating a
transport vehicle (Tata Truck-407), as his license only authorized him to drive light motor
vehicles (private). The insurer contended this amounted to a breach of the insurance policy
conditions. However, MACT held the insurer liable to pay the compensation while granting
them the right to recover the amount from the insured. The insurance company challenged
MACT’s decision before the Delhi High Court. The High Court dismissed their appeal, citing
the Supreme Court’s decision in United India Insurance Co. Ltd. v. Lehru. The High Court held
that the insurer could not escape liability when given the right to recover compensation from
the insured.

On further appeal, the Supreme Court examined the scope of Sections 149(2)(a)(ii), (4), and
(5) of the Motor Vehicles Act, 1988, particularly regarding cases where a driver has a license
for one type of vehicle but drives another. The Court emphasized that while insurers can raise
the defence of an invalid license, they must prove that the insured failed to take adequate care
in verifying the driver’s credentials. Thus, The apex Court remanded the matter back to MACT
for fresh consideration in light of the principles established in the Swaran Singh case. The Court
directed MACT for reconsideration.

10. Rani and Others v. National Insurance Company Limited (2020) 4 SCC 49

Even in a successful defence, the insurer is still bound to pay. (Imp. Similar facts.)

The case arose from two separate motor accident claims concerning an accident that occurred
on July 17, 2009. Satish (deceased) and Anand were travelling on a motorcycle when they were
hit by a lorry driven rashly and negligently. Satish succumbed to his injuries, while Anand
suffered serious injuries requiring hospitalization and multiple surgeries. Two separate claim
petitions were filed before the Motor Accident Claims Tribunal (MACT) in Bangalore:

1. The legal representatives of Satish filed a claim seeking compensation. The Tribunal
awarded Rs. 4,53,000 with 6% interest, calculating notional income at Rs. 3,000 per month due
to lack of income evidence.

2. Anand filed a separate claim for his injuries. The Tribunal awarded him Rs. 1,72,700 with
6% interest, determining his disability at 10% and using the same notional income of Rs. 3,000
per month.

The National Insurance Company appealed the Tribunal’s awards, arguing that the offending
vehicle lacked a valid permit to operate in Karnataka. The High Court made two significant
decisions:

1. For Satish’s case: The Court enhanced the compensation to Rs. 16,00,000 by increasing the
notional income to Rs. 10,000 per month based on the deceased’s driving license and training
certificate.

2. For Anand’s case: The Court absolved the insurer of liability, directing the vehicle owner to
pay the compensation.
On further appeal, The Supreme Court held that even when an insurer successfully raises a
defence under Section 149 of the Motor Vehicles Act, they must still pay the compensation first
and then recover it from the vehicle owner. Thus, The Supreme Court partially allowed the
appeals, directing the Insurance Company to first pay the compensation amounts as determined
by the respective tribunals, with the right to recover the same from the owner of the offending
vehicle. This judgment established important principles regarding the assessment of notional
income and the “pay and recover” principle in motor accident claims.

11. Nirmala Kothari v. United India Insurance Co. Ltd. (2020) 4 SCC 49.

The scope of due diligence required from vehicle owners when employing drivers and the
burden of proof on insurance companies when denying claims based on invalid licenses
are discussed.

On June 6, 2010, a Hyundai Elantra vehicle owned by Vinod Ray Kothari was involved in an
accident with a tractor. The vehicle was insured with United India Insurance Company for Rs.
5,00,000. Both Kothari and his daughter died in the accident, and the vehicle was damaged.
The driver, Dharmendra Singh Chauhan, had presented a driving license allegedly issued by
the licensing authority in Sheikh Sarai, Delhi. After the accident, the insurance company
appointed surveyors who investigated the matter. The company rejected the claim on grounds
that the driver’s license could not be verified, as the transport department reported no records
of the license existed. This led to two consumer complaints being filed:

1. The first complaint sought Rs. 5,00,000 (the insured value) plus 9% interest, Rs. 50,000 for
mental agony, and Rs. 11,000 as litigation costs. The District Forum allowed this complaint
and awarded Rs. 3,57,500 with interest.

2. The second complaint requested Rs. 2,00,000 as accident claim with interest, Rs. 20,000 for
mental agony, and Rs. 11,000 for litigation costs. This was also allowed, with the Forum
awarding Rs. 2,00,000 plus interest.

The insurance company challenged both orders through appeals and revision petitions,
ultimately reaching the National Commission, which absolved the company of liability due to
the unverified license.

The Supreme Court overturned the National Commission’s order, holding that:
1. While hiring a driver, an employer is expected to verify if the driver has a driving license,
but is not required to investigate its authenticity if it appears genuine on its face.

2. The onus lies on the insurance company to prove that the insured was aware of or had notice
that the license was fake and still permitted the person to drive.

3. In this case, the complainant had employed the driver after checking his license, which
appeared genuine. The driver had been driving competently, and there was no reason to doubt
the license’s veracity.

The Court allowed the appeals and held the insurance company liable to indemnify the
appellant, emphasizing that placing an unreasonable burden on vehicle owners to verify
licenses with RTOs across the country would be impractical.

12. United India Insurance Co. Ltd. v. Davinder Singh, (2007) 8 SCC 698

The case involved a vehicle owned by Davinder Singh that met with an accident on April 20,
2004. The vehicle was being driven by Kulbir Singh at the time of the accident. Upon
investigation, it was discovered that Kulbir Singh’s driving license was not issued by the proper
Licensing Authority in Solan. After the accident, Davinder Singh filed a complaint before the
District Consumer Disputes Redressal Forum under Section 12 of the Consumer Protection
Act, 1986. He claimed compensation for damages covered under his insurance policy. The
Forum awarded him Rs. 1,23,412 in damages plus Rs. 20,000 for other expenses, along with
9% interest per annum. The insurance company appealed this decision, but both the State
Consumer Disputes Redressal Commission and the National Commission dismissed their
appeals. The matter then reached the Supreme Court.

The primary question before the Supreme Court was whether the renewal of a driving license
that was originally forged would create any liability for the insurance company. The insurance
company argued that a fake license cannot be renewed and that such renewal cannot legitimize
an originally forged document.

The Supreme Court held that The Motor Vehicles Act, 1988 was enacted to meet social
obligations regarding third-party insurance, making such coverage mandatory. Thus, under
Section 149 of the Act, insurance coverage for damage to the vehicle owner is not compulsory.
The Court distinguished between the insurer’s statutory liability toward third parties and its
contractual obligations toward the vehicle owner. Thus, The Court held that while an insurance
company may be liable to indemnify the owner under the Motor Vehicles Act’s provisions, it
is not necessarily required to compensate the owner for their own losses. Therefore, the apex
Court allowed the insurance company’s appeal, setting aside the Consumer Forum’s judgment.
The Court concluded that the consumer forum had erred in holding the insurer liable to
compensate the vehicle owner when the driver possessed a fake license. However, the Court
did not impose any costs on either party.

“Different considerations would arise in a case of this nature, as the Consumer Forum
established under the Consumer Protection Act, 1986 was concerned only with a question as
to whether there was deficiency of service on the part of the appellant or not. A right on the
part of the insurance company not to pay the amount of insurance would depend upon the facts
and circumstances of each case. It in certain situations it may be bound to pay the claim made
by the third party; if the same is filed before a forum created under the Motor Vehicles Act. But
defence may be held to be justified before a different forum where the question raised is
required to be considered in a different manner.” (Para 16)

13. United India Insurance Co. Ltd. v. Smt. Madhu Goel and Ors. (2010) SCC OnLine
P&H 6384 (Imp)

The judgment demonstrates how courts may look beyond procedural irregularities to
ensure justice when the underlying insurance coverage exists to protect the victims.

The case involved a collision between a car and a truck where the deceased was a passenger in
the car. The Motor Accident Claims Tribunal found both drivers equally responsible for the
accident and apportioned liability 50-50, awarding compensation of Rs. 4,36,156. The claim
was initially filed under Section 166 of the Motor Vehicles Act but was later amended to
proceed under Section 163-A. This amendment proved problematic as Section 163-A has
specific limitations: it cannot be invoked when the annual income exceeds Rs. 40,000, and it
operates on strict liability without requiring proof of negligence from other vehicles.

Insurance Company argued that the deceased was an income tax assessee earning Rs. 100,000
annually, making the claim under Section 163-A inadmissible as it exceeded the Rs. 40,000
threshold and since the car driver was found partially negligent, the insurance company should
not be held liable.

The High Court, while acknowledging that the claim was inappropriately filed under Section
163-A, did not dismiss the petition. Instead, it found that the deceased was a passenger covered
under a comprehensive package policy for which a premium of Rs. 6,153 had been paid. The
case should be treated as one of composite negligence, allowing the claimant to recover the
entire amount from any joint tortfeasor. The insurance company must pay the full awarded
amount but retains the right to recover 50% from the truck owner.

Thus, The Court modified the award to make the insurance company liable for the entire
compensation amount while preserving its right to recover 50% from the truck owner (5th
respondent) as it was a package policy. This decision upheld the principle of complete
compensation for accident victims while ensuring equitable distribution of liability between
the responsible parties.

14. National Insurance Co. Ltd. v. Birender & Ors. (2020) 11 SCC 356

The case arose from a fatal accident on October 20, 2014, when Smt. Sunheri Devi, while
travelling as a pillion rider on a motorcycle, was killed in a collision with a dumper/tipper being
driven rashly. Her two major sons filed a claim petition seeking compensation of Rs. 50,00,000
with 12% interest. The Motor Accident Claims Tribunal awarded compensation considering
the deceased’s monthly salary of Rs. 23,123 and family pension of Rs. 7,000. The High Court
modified this award, calculating compensation at Rs. 29,20,672 but then reducing it to Rs.
4,84,716 after deducting 50% of the financial assistance available under the 2006 Rules. On
further appeal, the Supreme Court in this case addressed three main questions:

1. Whether major sons who are married and gainfully employed can claim compensation under
the Motor Vehicles Act

2. Whether such legal representatives are entitled only to conventional heads of compensation

3. Whether amounts receivable under the 2006 Rules (for deceased government employees’
dependents) should be deducted from the compensation

The Court concerning Legal Representatives’ Rights held that all legal representatives of the
deceased can claim compensation under Section 166(1)(c) of the Act. This right extends to
major married and earning sons, regardless of dependency thus, the claim cannot be limited to
only conventional heads of compensation. Also, on the issue of treatment of Government
Benefits, the Court clarified that amounts receivable under the 2006 Rules should not be
automatically deducted. There exists a requirement of claimants to file an affidavit declaring if
they receive or will receive such benefits. thus, allowed deduction of any received amounts
from the final compensation The Court partially allowed the appeals and established that
compensation should be paid subject to the outcome of the claimants’ application for financial
assistance under the 2006 Rules. This judgment significantly clarified the rights of legal
representatives in motor accident claims and the treatment of concurrent government benefits.

15. Sanjeena Ikhbal v. Mini Babu George 2019 SCC OnLine Ker 24076

The case largely deals with the material facts and investigation side.

In this case, the victim died while recovering from the injuries alleged to be due to the accident
by the car while the investigation revealed that it was his own fault as he tried to overtake a
bus and his vehicle slid which resulted into fatal injuries and death.

The Apex Court upheld the award of the tribunal stating that the investigation was correct thus,
there was no compensation.

16. New India Assurance Co. Ltd. v. Bismillah Bai & Ors. (2009) 5 SCC 112

On August 26, 1995, Israel (deceased) was traveling in a jeep when it collided with a truck,
resulting in his death at the accident site. Israel’s family filed a compensation claim under
Sections 166 and 140 of the Motor Vehicles Act. The Tribunal awarded Rs. 3,12,000 with
interest as compensation as it found that the accident occurred due to rash and negligent driving
of the truck, the jeep driver (Israel) was not at fault and the Insurance Company was not held
accountable as Israel was not driving negligently. The High Court modified the Tribunal’s order
and held that the insurance company could not be held liable as no sufficient reasons were
given to establish joint liability of both vehicles.

Supreme Court affirmed that a gratuitous passenger in a goods carriage would not be covered
by the insurance contract as the insurance policy was statutory in nature and did not cover risk
to gratuitous passengers. Only third-party risks are covered under Section 147 of the Act. The
contract of insurance cannot be extended beyond its terms to cover pillion riders or gratuitous
passengers. Thus, the appeal was allowed with no costs and the insurance company was not
held liable to pay compensation.

17. M.S. Bhati v. National Insurance Co. Ltd. (2019) 12 SCC 248

The case arose from an accident involving a Mahindra Jeep that occurred on April 11, 2008,
resulting in injuries to the driver and eight passengers, with three fatalities. The vehicle was
insured with the respondent for Rs. 2,70,084, but the insurance company repudiated the claim.

The District Forum initially rejected the consumer complaint, citing that the driver's license
had been renewed after the accident occurred. The State Consumer Disputes Redressal
Commission (SCDRC) reversed this decision, but the National Consumer Disputes Redressal
Commission (NCDRC) ultimately restored the District Forum's order, leading to this appeal.

The central question was whether a jeep not exceeding 7500 kg falls within the category of a
“light motor vehicle” under Section 2(21) of the Motor Vehicles Act, and consequently, whether
the insurance company could repudiate liability based on the driver's license status.

The Supreme Court made several significant determinations thereby allowing the appeal i.e.,

1. Definition of Light Motor Vehicle: The Court examined Section 2(21) of the Motor Vehicles
Act, which defines a “light motor vehicle” as including transport vehicles with gross vehicle
weight not exceeding 7500 kg. This definition encompasses various vehicle types, including
transport vehicles and omnibuses.

2. Driver's License Validity: The Court noted that the Motor Accident Claims Tribunal (MACT)
had found the deceased driver's license for driving a light motor vehicle was valid from August
16, 1994, to May 18, 2013. This finding was not disputed by the insurer during proceedings.

3. Binding Precedent: The Court relied heavily on the Mukund Dewangan case, which had
previously interpreted these provisions. Following the principle of judicial discipline, the Court
held that this interpretation remained binding until reconsidered by a larger bench.

18. New India Assurance Co. Ltd. v. Meenakshi & Ors. 2023 SCC OnLine Mad 1833

The case involves a fatal motor accident that occurred on November 26, 2010, when a Maruti
800 car driven by Mr. Arjunan (4th respondent) met with an accident, resulting in the death of
passenger Palanisamy, a police constable. The deceased's wife and parents filed a claim petition
seeking compensation of Rs. 25 lakhs.

The primary dispute centered on whether the insurance company (New India Assurance Co.
Ltd.) was liable to pay compensation, given that:

1. The insurance policy was only an “Act Policy” (statutory/liability only policy)

2. The deceased was a gratuitous passenger in a private car

3. No additional premium was paid to cover passenger risk

The High Court examined several precedents and made the following key determinations:

1. An Act Policy does not cover gratuitous passengers in private vehicles, as established by
multiple Supreme Court judgments.
2. The insurance company cannot be directed to pay and recover from the vehicle owner in this
case, as there is no statutory requirement to cover passenger liability.

The Court thus, confirmed the compensation amount of Rs. 20,20,000 awarded by the tribunal
setting aside the tribunal's direction making the insurance company liable thereby made the
vehicle owner (4th respondent) solely liable to pay the compensation with 7.5% interest.

19. National Insurance Co. Ltd. v. Vasant Shankar Sutrar & Ors. 2020 SCC OnLine
Bom 2106

The Motor Accident Claims Tribunal (MACT) at Raigad-Alibaug had awarded Rs. 8,42,000
with 7.5% interest to the respondents (claimants), directing both the insurance company and
respondent no. 4 to pay jointly and severally. The insurance company appealed this judgment,
specifically challenging the absence of a provision allowing them to recover the amount from
respondent no. 4 under Section 149 of the Motor Vehicles Act, 1988.

The central issue was that the driver of the offending vehicle possessed a fake license at the
time of the accident on August 3, 2007. The insurance company presented evidence through a
Junior Clerk from the Regional Transport Office (RTO) Mumbai, who testified that the driver's
license was only valid from February 8, 2007, to June 9, 2007, making it invalid at the time of
the accident.

The High Court found that the Tribunal had overlooked crucial evidence regarding the fake
license. The Court referenced its previous decision in The Oriental Insurance Co. Ltd. v. Dinesh
Anantrao Hingu, which established that insurance companies can only be held liable with a
valid insurance policy and when the driver holds a valid license.

Thus, the Court modified the original award with the following key provisions:

1. The insurance company must first pay the awarded amount to the claimants.

2. The company would then be entitled to recover this amount from respondent no. 4 under
Section 149(2) of the Motor Vehicles Act.

3. The claimants could withdraw the deposited amount with interest and pursue the shortfall,
if any.

4. The rest of the original judgment remained unchanged.

This decision reinforces the principle that while insurance companies must fulfill their
obligation to compensate accident victims, they have the right to recover payments when the
accident involves a driver with a fake or invalid license.

Conclusion

The legal framework emerging from these cases strongly supports the tribunal’s order. The
consistent judicial approach has been to prioritize victim compensation while protecting
insurers through recovery mechanisms. This balances the social welfare objective of the Motor
Vehicles Act with the commercial interests of insurance companies.

The tribunal’s order directing Magma HDI to compensate the victim’s family while
maintaining their right to recover from the owner who breached policy terms represents a
legally sound application of established principles. This approach ensures both immediate
victim relief and long-term insurer protection, making it a sustainable and equitable solution.

This analysis demonstrates that courts have consistently upheld the principle that insurance
companies must honour their primary obligation to compensate victims, particularly in cases
involving comprehensive policies with adequate premium payments, while retaining their right
to recover from parties who breach policy terms.