National Insurance Company Ltd. v. Mamta Gupta & Ors.

1. Common ground of challenge is laid against the judgment dated 21.10.2014 passed by the Motor Accident Claims Tribunal (the Claims Tribunal) whereby it was held that the owner did not possess a valid permit on the date of the accident and therefore, while making the Insurance Company liable to pay the compensation, recovery rights were granted to it against the owner.

2. It is urged by the learned counsel for the Appellant that since the Insurance Company successfully proved conscious breach of the terms of insurance policy, it was entitled to be exonerated of its liability instead of making it liable to first satisfy the award and then to recovery from the insured.

3. The issue of satisfying third party liability even in case of conscious breach of the terms and conditions of the insurance policy is settled by three Judge Bench report in Sohan Lal Passi v. P. Sesh Reddy, (1996) 5 SCC 21. As per Section 149(2) of the Motor Vehicles Act, 1988 (the Act), an insurer is entitled to defend an action on the grounds mentioned under Section 149(2)(a)(i)(ii) of the Act. Thus, the onus is on the insurer to prove that there is breach of the terms and conditions of the insurance policy. It is well settled that the breach must be conscious and willful. Even if a conscious breach on the part of the insured is established, still the insurer has a statutory liability to pay the compensation to the third party and it will simply have the right to recover the same from the insured/tortfeasor either in the same proceedings or by independent proceedings as the case may be, as ordered by the Claims Tribunal or the Court. The question of statutory liability to pay the compensation was also discussed in detail by a two Judge Bench of the Supreme Court in Skandia Insurance Company Limited v. Kokilaben Chandravadan, (1987) 2 SCC 654 where it was held that exclusion clause in the contract of Insurance must be read down being in conflict with the main statutory provision enacted for protection of victims of accidents. It was laid down that the victim would be entitled to recover the compensation from the insurer irrespective of the breach of the conditions of the policy. The three Judge Bench of the Supreme Court in Sohan Lal Passi analysed the corresponding provisions under the Motor Vehicles Act, 1939 and the Motor Vehicles Act, 1988 and approved the decision in Skandia. In New India Assurance Co., Shimla v. Kamla and Ors., (2001) 4 SCC 342, the Supreme Court referred to the decision of the two Judge Bench in Skandia as well as the three Judge Bench decision in Sohan Lal Passi and held that the insurer who has been made liable to pay the compensation to third parties on account of issuance of certificate of insurance, shall be entitled to recover the same if there was any breach of the policy condition on account of the vehicle being driven without a valid driving licence. The relevant portion of the report is in New India Assurance Co. Shimla is extracted hereunder:

4. Again in United India Insurance Company Ltd. v. Lehru & Ors., (2003) 3 SCC 338, in para 18 of the report the Supreme Court referred to the decisions in Skandia, Sohan Lal Passi and Kamla and held that even where it is proved that there was conscious or willful breach as provided under Section 149(2)(a) (ii) of the Motor Vehicles Act, 1988 the Insurance Company would still remain liable to the innocent third party but may recover the compensation paid from the insured. The relevant portion of the report is extracted hereunder:

xxxx xxxx 20.……….If it ultimately turns out that the licence was fake, the insurance company would continue to remain liable unless they prove that the owner/insured was aware or had noticed that the licence was fake and still permitted that person to drive. More importantly, even in such a case the insurance company would remain liable to the innocent third party, but it may be able to recover from the insured. This is the law which has been laid down in Skandia, Sohan Lal Passi and Kamla cases. We are in full agreement with the views expressed therein and see no reason to take a different view.”

5. The three Judge Bench of the Supreme Court again in National Insurance Company Limited v. Swaran Singh & Ors., (2004) 3 SCC 297 emphasised that the liability of the insurer to satisfy the decree passed in favour of the third party was statutory. It approved the decision in Sohan Lal Passi, Kamla and Lehru. Paras 73 and 105 of the report are extracted hereunder:

6. This Court in Oriental Insurance Company Limited v. Rakesh Kumar and Others, 2012 ACJ 1268 and other appeals decided by a common judgment dated 29.02.2012, noticed some divergence of opinion in National Insurance Company Limited v. Kusum Rai & Ors., (2006) 4 SCC 250, National Insurance Company Limited v. Vidhyadhar Mahariwala & Ors., (2008) 12 SCC 701; Ishwar Chandra & Ors. v. The Oriental Insurance Company Limited & Ors., (2007) 10 SCC 650 and Premkumari & Ors. v. Prahalad Dev & Ors., (2008) 3 SCC 193 and held that in view of the three Judge Bench decision in Sohan Lal Passi(supra) and Swaran Singh, the liability of the Insurance Company vis-à-vis the third party is statutory. If the Insurance Company successfully proves the conscious breach of the terms of the insurance policy, then it would only be entitled to recovery rights against the owner or the driver, as the case may be.