A NATIONAL INSURANCE CO. LTD.

V.

SWARAN SINGH AND ORS.

JANUARY 5, 2004

B [V. N. KHARE, CJ, D.M. DHARMADHIKARI AND S.B. SINHA, JJ.]

Motor Vehicles Act, 1988: Ss. 3, 149(2(a)(ii), (4), (5) & (7), 165 and /
168/The Third Parties (Rights against Insurers) Act, 1930:

C Claim Petition-Awards by the Motor Vehicles Claims Tribunal-Liability

of insurer to third party-Defence available to insurer-Interpretation a/-
Held: Motor Vehicles Act is a social welfare legislatio,'1 extending relief to
victims/third party by awarding compensation-Breach of policy condi1ions
by the insured could be raised as defence but such breaches have to be
established by the insurer-The Insurer must also establish that the breaches
D had contributed to the cause of the accident to absolve himselffrom liability-
!nvalid driving licence/disqualification of the driver not available as defences
to insurer-If vehicle, at the time of accident, driven by a person having
learner's licence, insurer would be liable to satisfy the decree.

Power of the Motor Vehicles Tribunal-Held: Empowered to adjudicate

E all claims in respect of Motor Vehicles accidents-It cannot be restricted to
decide such claims inter se between the claimants on one side and the, insured/
insurer and driver on !he other--Awards enforceable/executable in terms of
Section 174 of the Act-Ifinsurer satisfactorily proves its defence, 1he Tribunal
may issue a certificate to the Cof/ector directing rccove1y of compensation!
F 01her amounts from the insured-If determination of rights of the parties inter
se delays adjudication of the case of the victims, the Tribunal could relegate
them before regular court.

Words and Phrases:

The rule of main purpose' and the concept of 'fundamental breach'-

G Meaning of in the context of Section 149 (2) of the Motor Vehicles Act, 1988.

'Effective licence '-Meaning of in the context of Motor Vehicles Acl,

1988. (

The questions involved in these petitions pertain to interpretation

If 180
 NATIONAL INSURANCE CO.LTD. 1·. SW ARAN SINGH 181

..,_. of Section 149 (2)(a)(ii), (4) & (5) vis-a-vis the proviso appended to sub- A
sections (4) & (5) thereof of the Motor Vehicles Act, 1988.

On behalf of the petitioner-insurer, it was contended that the insurer

has an absolute right to raise a defence in terms of Section 149(2)(a)(ii) of
the Act; that the insurer requires to prove/establish that the vehicle
involved in the accident was driven by a person who was not duly insured; B
that a person cannot be said to be duly insured unless he has been granted
a permanent licence for driving a particular vehicle in terms of provisions
\ of Chapter II of the Act; that when the defence raised by the insurer is
established, the liability shifted to the owner/driver of the vehicle; and that
the Tribunal/Court cannot direct the insurer to pay the compensation. C
However, the owner/driver of the vehicle could be directed to make
payment of compensation to the victim.
On behalf of the respondents/third party claimants, it was submitted
that a driver once licensed, unless he is disqualified, would continue to be
a duly licensed person; that once a person has been duly licensed, defence
under Section 149 of the Act would not be available to the insurer even if D
the licence was not renewed up to 5 years since its expiry; that the right
of insurer to avoid the claim of the third party would arise only when the
,,~ policy was obtained by misrepresentation of material facts and by fraud;
that the burden to prove the defence raised hy the insurer as to any breach
or violation of the policy would be upon the insurer; and that it is not E
sufficient for the insurer to prove that the person driving the vehicle at
the time of accident was not duly licensed but it must also be established
that there was a breach on the part of the insured.
Dismissing the petition, the Court
HELD: I. The provision for compulsory insurance has been F
incorporated in the Motor Vehicles Act with a view to protect the rights
of a third party. The intention of the Parliament became further evident
r when in the Motor Vehicles Act, 1939, a new chapter being Chapter VllA
dealing with insurance of motor vehicles against third party risks was
introduced and the benelicent provisions contained in the Motor Vehicles G
Act, 1988 were further made liberal by reason of the amendments carried
out therein from time to time in aid of the third party claims by way of
grant of additional or new rights conferred on the road accident victims.
A third party claim arises when a victim of an accident suffers a bodily
injury or death as a result thereof, or his property is damaged. An accident
is not susceptible to a very precise definition. 1202-D; H; 203-A-BJ H
 182 SUPREME COURT REPORTS [20041 I S.C.R.

A R. v. Morris, (1972) l W.L.R. 228 and Pickford & Black ltd. v. -r

Canadian General Insurance Co., (1976) 2 Lloyd'; Rep. 108, referred to.

Halsbury's laws of England, Fourth Edition Reissue and law of

Insurance by Colinvaux (6th Edition) page 304, referred to.

2.l. The Third Parties (Rights Against Insurers) Act, 1930 was
B
enacted with a view to correct injustice effecting a statutory assignment
of the rights of the assured to the injured person as prior thereto the right
of a person to be indemnified under a contract of insurance in respect of
J
claims made against him by persons whom he might have injured was one
personal to himself, and there was no privity of any sort between the
c injured person and the insurers. The injured person had no interest either
at law or in equity in the insurance money, either before or after it was
paid by the insurers to the assured. 1203-C-D)

2.2. A right of the victim of a road accident to claim compensation

is a statutory one. He is a victim of an unforeseen situation. He would not
D ordinarily have a hand in it. The negligence on the part of the victim may,
however, be contributory. He has suffered owing to wrongdoing of others.
An accident may ruin an entire family. It may take away the only earning
member. (205-C) '""'
2.3. A person suffering grievous bodily injury may require money
E for his survival/medical treatment. Statutory compensation paid to the next
of kin of the victim of an accident may, thus, bring to a large number of
families the only ray of light at the end of the tunnel. When a death or
bodily injury has been caused as a result of assured's own voluntary act,
it would be covered by the contract of insurance vis-a-vis the beneficent
statutory provisions like sub-section (2) of Section 149 of the Act. Even
F
an unforeseeable result of assured's deliberate act may come within the
purview of the accident. Even if an accident has occurred due to negligent
driving of the assured person, it may not prevent recovery under the policy
and certainly thereby a third party would not be non-suited. 1206-A-C!

G 2.4. Sub-section (I) of Section 149 casts a liability upon the insurer
to pay to the person entitled to the benefit of the decree as if he were the
judgment debtor. Although the said liability is subject to the provision of
this section, it prefaces with a 11011-obstanle clause that the insurer may be ,...
entitled to avoid or cancel or may have avoided or cancelled the policy.
Furthermore, the statute raises a legal fiction to the effect that for the said
H purpose the insurer would be deemed to be judgment debtor in respect of
 NATIONAL INSURANCE CO. LTD. v. SWARAN SINGH 183
the liability of the insurer. (206-G-H; 207-A( A
2.5. The defence available to an insurance company would be a
limited one. It is beyond any doubt or dispute that under Section 149(2)
of the Act an insurer, to whom notice of the bringing of a proceeding for
compensation has been given, can defend the action on any of the grounds
mentioned therein. However, Clause (a) opens with the words "that there B
has been a breach of a specified condition of the policy", implying that
the insurer's defence of the action would depend upon the terms of the
policy. (207-F; G-H; 208-A]

National Insurance Co. Ltd Chandigar,h v. Nicol!etta Rohtagi and Ors., C

[2002] 7 SCC 456 and Sadhana Lodh v. National Insurance Company Ltd
and Anr.. [2003( I SCR 567, relied on.

3. The words used in Section 3 of the Act are 'effective licence'.

However, it has been differently worded in Section 149(2) i.e. 'duly
licensed'. If a person does not hold an effective licence as on the date of D
the accident, he may be liable for prosecution in terms of Section 141 of
the Act but Section 149 pertains to insurance as regard third party risks.
r> (208-B-C(

4. A provision of a statute which is penal in nature vis-a-vis a

provision which is beneficent to a third party must be interpreted E
differently. It is also well known that the provisions contained in different
expressions are ordinarily construed differently. [208-C-D]

5.1. The insurance company, with a view to avoid its liabilities, is

not only required to show that the conditions laid down under Section
149(2)(a) or (b) of the Act are satisfied but is further required to establish F
that there has been a breach on the part of the insured. By reason of the
provisions contained in the 1988 Act, a more extensive remedy has been
conferred upon those who have obtained judgment against the user of a
vehicle and after a certificate of insurance is delivered in terms of Section
147(3) a third party has obtained a judgment against any person insured G
by the policy in respect of a liability required to be covered by Section
145, the same must be satisfied by the insurer, notwithstanding that the
insurer may be entitled to avoid or to cancel the policy or may in fact
have done so. The same obligation applies in respect of a judgment against
a person not insured by the policy in respect of such liability, but who
would have been covered if the policy had covered the liability of all H
 184 SUPREME COURT REPORTS [2004] I S.C.R.

A persons, except that in respect of liability for death or bodily injury. Such
a breach on the part of the insurer must be established by the insurer to
show that not only the insured used or caused or permitted to he used the
vehicle in breach of the Act but also that the damage he suffered flowed
from the breach. (209-B-F(

B 5.2. It is trite that where the insurers relying upon the provisions of
violation of law by the assured takes an exception to pay the assured or a
third party, they must prove a wilful violation of the law by the assured.
In some cases violation of criminal law, particularly, violation of the
provisions of the Motor Vehicles Act may result in absolving the insurers
C but, the same may not necessarily hold good in the case of a third party.
In any event, the exception applies only to acts done intentionally or so
recklessly as to denote that the assured did not care what the consequences
of his act might be. [209-H; 210-A-B]

Narcinva V.' Karnath and Anr. v. Alfredo Antonio Doe Martins and Ors.,
D (1985] 2 SCC 574, Skandia Insurance Company ltd. v. Koki/aben
Chandevadan and Ors., [198712 SCC 654 and B. V. Nagaraju v. Mis. Oriental
Insurance Co. Ltd., AIR (1996) SC 2054, referred to.

6. A contract of insurance also falls within the realm of contract. '""'

Thus, like any other contract, the intention of the parties must be gathered
E from the exprt!ssions used therein. In the event the terms and conditions
of policy are obscure, it is permissible for the purpose of construction of
the deed to look to the surrounding circumstances as also the conduct of
the parties. The Courts also readily apply the doctrine of waiver in favour
of the insured and against the insurer. The insurer's liability arises both
from contract as well as statute. It will, therefore, may not be proper to
F apply the rules for interpretation of a contract for interpreting a statute.
[211-E-F; 212-H; 213-F-GI

Oriental Insurance Co. ltd. v. Sony Cheriyan, [ 1999] 6 SCC 451 and
Oriental Insurance Co. Ltd. v. Samayanallur Primary Agricultural Co-op Bank,
Al R (2000) SC I 0, relied on.
G
Sweeney v. Kennedy, (1948) 82 L.l.L. Rep. 294, referred to.

7.1. The provisions of Section 149 of the Act reveal that usual rule
is that once the assured proved that the accident is covered by the
compulsory insurance clause, it is for the insurer to prove that it comes
H within an exception. The proposition of law is no longer res integra that
... NATIONAL lNSURANCECO. LTD.1·. SW ARAN SINGH 185

- <
I the person who alleges breach must prove the same. The insurance
company is, thus, required to establish the said breach by cogent evidence.
In the event, the insurance company fails to prove that there has been
A

breach of conditions of'Policy on the part of the insured, the insurance

company cannot be absolved of its liability. 1215-E; 216-D~EI

Rukmani and Ors. \'. New India Assurance Co. Ltd. and Ors., (1999) B
ACJ 171 and Sohan Lal Passi v. P. Sesh Reddy and Ors., 119961 5 SCC 21,
relied on.

Mac Gillivray on Insurance Law, referred to.

7.2. The degree of proof which would satisfy the requirement of law c
would indisputably depend upon the facts and circumstances of each case.
It will also depend upon the terms of contract of insurance. Each case may
pose different problem which must be resolved having to a large number
1
of factors governing the case including conduct of parties as regard duty
to inform, co.-rect disclosure, suppression, fraud on the insurer etc. It will
D
also depend upon the fact as to who is the owner of the vehicle ar.d the
}'. circumstances in which the vehicle was being driven by a person having
_ no valid and effective licence. No hard and fast rule can therefor be laid
down. If in a given case there exists sufficient material to draw an adverse
inference against either the insurer or the insured, the Tribunal may do
so. The provisions of sub-sections (4) and (5) of Section 149 may be E
considered as the liability of the Insurer to satisfy the decree at the first
instance.1216-E-H; 217-AI

7.3 The liability of the insurer is a statutory one. The liability of the
insurer to satisfy the decree passed in favour of a third party is also
statutory. The insurance company cannot shake off its liability to pay lhe F
compensation only by saying that at the relevant point of time the vehicle
r was driven by a person having no licence. Where a liability has been
established by a judgment, it is not permissible to look beyond tlte
determination in order to establish the basis of the li~bility. The
submission, that sub-section (4) of Section 149 deals with the situation G
where the insurer in the policy purports to restrict the insurance of the
persons insured thereby by reference to any condition other than those in
clause (b) of sub-section (2) of Section 149 and in that view of the matter
no liability is covered for driving of a vehicle without licence or fake
licence, ignores the plain and unequivocal expression used in sub-section
(2) of Section 149 as well as the proviso appended thereto. With a view to H
 l
186 SUPREME COURT REPORTS [2004) I S.C.R.

A consfrue a statute the scheme of the Act has to be taken into consideration.
For the said purpose the entire Act has to be read as a whole and then
chapter by chapter, section by section and word by word.
1217-C; 218-B-C; 220-H; 221-A-Bj

Sohan lal Passi v. P. Sesh Reddy and Ors., 11996) 5 SCC 21; Reserve
B Bank of India etc. v. Peerless General Finance and Investment Co. ltd. and
Ors., 1198711 SCC 424, relied on.
,1
United Insurance Co. Ltd. v. Jaimy and Ors., (1998) ACJ 1318, referred
to.

C Halsbury 'slaws of England, fourth Edition Reissue, Volume 25,

referred to.

7.4. Proviso appended to sub-section (4) of Section 149 is referable

only to sub-section (2) of Section 149 of the Act. It is an independent
provision and must be read in the context of Section 96(4) of the Motor
D Vehicles Act, 1939; that the insurer will be entitled to avoid its liability
owing to breach of terms of a contrnct of insurance but it is another thing
to say that the vehicle is not insured at all. 1221-C-DI

New India Assurance Co .. Shi111'a v. Ka111'a and Ors. etc., 1200114 SCC
342, referred to.
E
7.5. Sub-section (5) of Section 149 which imposes a liability on the
insurer must also be given its full effect. The insurance company may not
be liable to satisfy the decree and, therefore, its liability may be zero b:1t
it does mean that it did not have initial liability at all. Thus, if the insurance
F company is made liable to pay any amount, it can recon~r the entire
amount paid to the third party on behalf of the assured. If this
interpretation is not given to the beneficent prnvisions of the Act having
regard to its purport and object, the beneficent provisions cannot be given
effect to. A beneficent statute must receive a liberal interpretation.
1221-E, Fl
G Bangalore Water S11pp~F & Sewerage Board etc. v. A. Rajappa and Ors.
etc., 119781 2 SCC 213; Steel Authori(J' of India ltd. and Ors. v. National
Union IYaterfront Workers and Ors., 120011 7 SCC I; IT/ ltd. , .. Siemens
Public Communications Network ltd., 1200215 SCC 510; Amrit Bhikaji Kale
and Ors. v. Kashinath Janardhan Trade and Anr., 119831 3 SCC 437 and
H K11nal Singh v. Union of India and Anr., 120031 4 SCC 524,_ relied on.
 NATIONAL INSURANCE CO. LTD.''· SWARAN SINGH 187
7.6. Sub-section (7) of Section 149 of the Act must be read with sub~ A
section (I) thereof. The right to avoid liability in terms of sub-section (2)
of Section 149 is restricted; that the insurance companies are entitled to
raise a defence. However, to say that despite the fact that its defence has
been accepted having regard to the facts and circumstances of the case,
the Tribunal has power to direct them to satisfy the decree at the first
instance and then direct recovery of the same from the owner. These two B
matters stand apart and require contextual reading. 1221-G-H; 222-Af

8. The owner of a motor vehicle, in terms of Section 5 of the Act,

has a responsibility to see that no vehicle is driven except by a person who
does not satisfy the provisions of Section 3 or 4 of the Act. In a case where C
the driver of the vehicle admittedly did not hold any licence and the same
was allowed consciously to be driven by the owner of the vehicle by such
person, the insurer is entitled to succeed in its defence and avoid liability.
The matter, however, may be different where a disputed question of fact
arises as to whether the driver had a valid licence or where the owner of
the vehicle committed a breach of the terms of the contract of insurance D
as also the provisions of the Act by consciously allowing any person to
drive a vehicle who did not have a valid driving licence. (222-B-Df

V. Mepherson v. Shiv Charan Singh, (1998) ACJ 601 (Del.), relied on.

Jitendra Kumar v. Oriental Insurance Co. Ltd and Anr., J.T. (2003) 5 E
SC 538; New India Assurance Co. Ltd v. Jagtar Singh and Ors., (1998) ACJ
1074 and National Insurance Co. Ltd v. !shroo Devi and Ors., (1999) ACJ
615, referred to.

9.1. Jn each case, on evidence led before the Tribunal, a decision has
to be taken whether the fact of the driver possessing licence for one type F
of vehicle but found driving another type of vehicle, was the main or
contributory cause of accident. If on facts, it is found that accident was
caused solely because of some other unforeseen or intervening causes like
mechanical failures and similar other causes having no nexus with driver
not possessing requisite type of licence, the insurer will not be allowed to G
avoid its liability merely for technical breach of conditions concerning
driving licence. Minor breaches of licence conditions, such as want of
medical fitness certificate, requirement about age of the driver and the
like not found to have been the direct cause of the accident, would be
treated as minor breaches of inconsequential deviation in the matter of
use of vehicles. Such minor and inconsequential deviations with regard to H
 188 SUPREME COURT REPORTS [2004] I S.C.R.

A licensing conditions would not constitute sufficient ground to deny the

benefit of coverage of insurance to the third parties. Where adjudication
is likely to entail undue delay in decision of the claim of the victim, the
•
tribunal in its discretion may relegate the insurer to seek its remedy of
reimbursement from the insured in the civil Court. [224-A-CI

B 9.2. It cannot be said that a person holding a learner's licence is not

entitled to drive the vehicle. Even if there exists a condition in the contract
of insurance that the vehicle cannot be drinn by a person holding a
learner's licence, the same would run counter to the provisions of Section
149(2) of the said Act. Learner's licences are granted under the rules
C framed by the Central Government or the State Governments in exercise
of their rule making power. Conditions are attached to the learner's
licences granted in terms of the statute. A person holding learner's licence
would also come within the purview of "duly licensed" as such a licence
is also granted in terms of the provisions of the Act and the Rules framed
thereunder. It is now a well-settled principle of law that rules validly
D framed become part of the statute. Such rules are, therefore, required to
be read as part of the main enactment. It is also well-settled principle of
law that for the interpretation of statute an attempt must be made to give
effect to all provisions under the rule. No provision should be considered
as surplusage. 1224-G-H; 225-A; C-D)

E New India Assurance Co. Ltd. v. Mandar Madhav Tambe and Ors ..
119961 2 sec 328, distinguished.

New India Assurance Co. ltd. v. latha Jayaraj and Ors., (1991) ACJ
298, approved.

F 9.3. The defence to the effect that the licence held by the person
driving the vehicle was a fake one, would be available to the insurance
companies, but whether despite the same, the plea of default on the part
of the owner has been established or not would be a question which will
have to be determined in each case. A defence that the licence is fake can
G certainly be raised by the insurer but then onus lies on the insurer to prove
that the insured did not take adequate care and caution to verify the
genuineness or otherwise of the licence held by the driver. 1226-0-G I
r-·
New India Assurance Co., Shim/av. Kam/a and Ors. etc., 120011 4 SCC
342 and United India Insurance Co. ltd. v. Lehru and Ors., 12003] 3 SCC
H 338, referred to.
 NATIONAL INSURANCE CO.LTD. v. SW ARAN SINGH 189
y Malla Prakasarao v. Mall Janaki and Ors., (Civil Appeal No.163 of A
1996 decided by S.C. on 6th August, 2002), distinguished.

9.4. The liability of the insurance company to satisfy the decree at

the first instance and to recover the awarded amount thereof has been
holding the field for a long time. Apart from the reasons, the doctrine of
stare decis persuades this Court not to deviate from the said principle. B
Further, it is well-settled rule of law and should not ordinarily be deviated
~ t
from. The Tribunal, and the Court must 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
c
envisaged under sub-clause (ii) of clause (a) of sub-section (2) of Section
149 of the Act, the insurance compar.y shall be entitled to realise the
awarded amount from the owner or driver of the vehicle, as the case may
be, in execution of the same award having regard to the provisions of
Sections 165 and 168 of the Act. However, in the event, having regard to D
the limited scope of inquiry in the proceedings before the Tribunal it had
not been able to do so, the insurance company may initiate a separate
i" action therefor against the owner or the driver of the vehicle or both, as
the case may be. Those exceptional cases may arise when the evidence
becomes available to or comes to the notice of the insurer at a subsequent
E
stage or for one reason or the other, the insurer was not given opportunity
to defend at all. Such a course of action may also be resorted when a fraud
or collusion between the victim and the owner of the vehicle is detected
or comes to the knowledge of the insurer at a later stage.
[227-E; 228-A-DI
F
The Bengal Immunity Company limited v. The State of Bihar and Ors.,
-I [1955[ 2 SCR 603; Keshav Mills Co. Ltd. v. Commissioner of Income Tax,
')c
Bombay North, [ 1965[ 2 SCR 908; Union ofIndia and Anr. v. Raghubir Singh
(dead) by Lrs. etc., [1989[ 3 SCR 316; Mis. Gannon Dunkerley & Co. & Ors.
v. State of Rajasthan and Ors:, [1993[ I SCC 364; Belgaum Gardeners
Cooperative Production Supply & Sale Society ltd. v. State of Karnataka, G
119931 Supp. 1 SCC 96 and Hanumantappa Krishnappa Mantur and Ors.,
v. State of Karnataka, [19921 Supp. 2 SCC 213, relied on.
-..,{
CIVIL APPELLATE JURISDICTION : Special Leave Petition (C) No.
9027 of 2003.
H
 190 SUPREME COURT REPORTS [2004] I S.C.R.

A From the Judgment and Order dated 9.12.2002 of the Punjab and
Haryana High Court in F.A.O. No. 5723 of 2002.

WITH

SLP (C) Nos. 10017, 10042, 10055, 10510, 10787, 10829-10831,

B 11129/2003, 153/04, 4917/2003, 154, 156, 155, 157, 159, 356/2004, 9335,
9356, 9554, 9560, 9811, 9812, 9815, 9867, 9900, 9947/2003, 321, 160, 357/
2004, .15528 and 15772 of 2002.
; ~
Barish N. Salve, M.L. Verma, P.P. Malhotra, Pramod Dayal, Prysh
Shanna, Vishnu Mehra, B.K. Satija, Jcy Basu, Atul Nanda, Ms. Veena Nanda,
c P.N. Puri, Shailendra Sharma, Ms. Binu Tamta, Ms. Pankaj Bala Verma, Ms.
Kirti Renu Mishra, S.L. Gupta, S.P. Jain, K.P. Singh, S.M. Suri, Ms. Meenu
Pandey, Pramod Dayal, Sudhir Kumar Gupta, P.K. Seth, Anurag Pandey, Ms.
Kiran Suri, Kishore Rawat, M.K. Dua, Manish Goswami, Rameshwar Prasad
Goyal, B.S. Chahar, Ms. Jyoti Chahar, Vinay Garg, Parveen K. Vohra, Dinesh
Venna, Ms. Suresh Kumari and A.P. Mohanty for the appearing parties.
D
The Judgment of the Court was delivered by

V. N. KHARE, CJ. Interpretation of Section 149(2)(a)(ii) vis-a-vis the ~

proviso appended to sub-sections (4) and (5) of the Motor Vehicles Act, 1988
is involved in this batch of special leave petitions filed by the National '
E Insurance Company Limited (hereinafter referred to as Insurer) assailing
various awards of the Motor Vehicle Claims Tribunal and judgments of the
High Courts.

In view of the fact that these petitions involve pure questions of law,
it is not necessary to advert to the individual fact pertaining to each matter.
F
Suffice, however, is to point out that the vehicles insured with the ...
petitioners were involved in accidents resulting in filing of claim applications ~

by the respective legal representatives of the deceased(s) or the injured

person(s), as the case may be.
G
Defences raised by the Petitioner company in the claim pet1t1ons
purported to b1: in terms of Section 149(2)(a)(ii) of the Motor Vehicles Act,
1988 (hereinafter referred to as 'the Act') were : (a) driving licence produced
by the driver or owner of the vehicle was a fake one; (b) driver did not have
any licence whatsoever; (c) licence, although was granted to the concerned
H driver but on expiry thereof, the same had not been renewed; (d) licence
 NATIONAL INSURANCE CO. LTD. r. SW ARAN SINGH [V. N. KHARE. CJ.] 191
Y granted to the drivers being for one class or description of vehiele but the A
vehicle involved in the accident was of different class or description; and (e)
the vehicle in question was driven by a person having a learner's licence.

Before we. proceed further in the matter it is relevant to notice certain

relevant statutory provisions which are :

"2( I0) "driving licence" means the licence issued by a competent

B
authority under Chapter II authorising the person specified therein to
drive, otherwise than as a learner, a motor vehicle or a motor vehicle
of any specified class or description:

3. Necessity for driving licence.-{ I) No person shall drive a motor C

vehicle in any public place unless he holds an effective driving licence
issued to him authorising him to drive the vehicle; and no person
shall so drive a transport vehicle other than [a motor cab or motor
cycle] hired for his own use or rented under any scheme made under
sub-section (2) of section 75 unless his driving licence specifically
entitles him so to do. D
(2) The conditions subject to which sub-section (I) shall not apply to
a person receiving instructions in driving a motor vehicle shall be
such as may be prescribed by the Central Government.
4. Age limit in connection with driving of motor vehicles.--(J) No E
person under the age of eighteen years shall drive a motor vehicle in
any public place:

Provided that a motor cycle with engine capacity not exceeding 50cc
may be driven in a public place by a person after attaining the age
of sixteen years.
F
(2) Subject to the prov is ions of section 18, no person under the
age of twenty years shall drive a transport vehicle in any pub Iic
place.
(3) No learner's licence or driving licence shall be issued to any
person to drive a vehicle of the class to which he has made an G
application unless he is eligible to drive that class of vehicle under
this section.
5. Responsibility of owners of motor vehicles for contravention of
sections 3 and 4.-No owner or person in charge of a motor vehicle
shall cause or permit any person who does not satisfy the provisions H
 l.

192 SUPREME COURT REPORTS [2004] I S.C.R.

A of section 3 or section 4 to drive the vehicle. y
•
6. Restrictions on the holding of driving licences. -(I) No person
shall, while he holds any driving licence for the time being in force,
hold any other driving licence el(cept a learner's licence or a driving
licence issued in accordance with the provisions of section 18 or a
B document authorising, in accordance with the rules made under section
139, the person specified therein to drive a motor vehicle.

(2) No holder of a driving licence or a learner's licence shall pennit )

it to be used by any other person.

C (3) Nothing in this section shall prevent a licensing authority having

the jurisdiction referred to in sub-section (I) of section 9 from adding
to the classes of vehicles which the driving licence authorises the
holder to drive.

7. Restrictions on the granting of learner's licences for certain vehicles.

D (I) No person shall be granted a learner's licence to drive a transport
vehicle unless he has held a driving licence to drive a light motor
vehicle for at least one year.

(2) No person under the age of eighteen years shall be granted a

learner's licence to drive a motor cycle without gear except with the
E consent in writing of the person having the care of the person desiring
the learner's licence."

Section 9 provides for grant of driving licence.

"9. Grant of driving licence.-(1) Any person who is not for the time
-
F being disqualified for holding or obtaining a driving licence may
apply to the licensing authority having jurisdiction in the area- •
(i) in which he ordinarily resides or carries on business, or
(ii) in which the school or establishment referred to in section 12
from where he is receiving or has received instruction in driving
G a motor vehicle is situated.
for the issue to him of a driving licence.
xxx xxx xxx xxx
(7) When any application has been duly made to the appropriate
H licensing authority and the applicant has satisfied such authority of
 NATIONAL INSURANCE CO.LTD. v.SWARAN SINGH [V.N. KHARE, CJ.] 193
1 his competence to drive, the licensing authority shall issue the applicant A
a driving licence unless the applicant is for the time being disqualified
for holding or obtaining a driving licence.

Provided that a licensing authority may. issue a driving licence to

drive a motor cycle or a light motor vehicle notwithstanding that it
is not the appropriate licensing authority, if the licensing authority is B
satisfied that there is good and sufficient reason for the applicant's
inability to apply to the ilPPf.Opriate licensing authority.

Provided further that the licensing authority shall not issue a new
driving licence to the applicant, if he had previously held a driving
licence, unless it is satisfied that there is good and sufficient reason c
for his inability to obtain a duplicate copy of his fonner licence.

(8) If the licensing authority is satisfied, after giving the applicant

an opportunity of being heard, that he-

(a) is a habitual criminal or a habitual drunkard; or D

(b) is a habitual addict to any narcotic drug or psychotropic substance
,. within the meaning of the Narcotic Drugs and Psychotropic Substances
Act, 1985 (61 of 1985); or

(c) is a person whose licence to drive any motor vehicle has, at any
time earlier, been revoked, it may, for reasons to be recorded in
E
writing, make an order refusing to issue a driving licence to such
person and any person aggrieved by an order made by a licensing
authority under this sub-section may, within thirty days of the receipt
of the order, appeal to the prescribed authority.
F
_.,. (9) Any driving licence for driving a motor cycle in force immediately
before the commencement of this Act shall, after such commencement,
)
be deemed to be effective for driving a motor cycle with or without
gear.

10. Form and contents of licences to drive.--{ I) Every learner's licence

G
and driving licence, except a driving licence issued under section 18,
shall be in such form and shall contain such information as may be
prescribed by the Central Government.

(2) A learner's licence or, as the case may be, driving licence
shall also be expressed as entitling the holder to drive a motor vehicle H
 194 SUPREME COURT REPORTS [2004) I S.C.R.
y
A of one or more of the following classes, namely: - ~

(a) motor cycle without gear;

(b) motor cycle with gear;

(c) invalid carriage;

B
(d) light motor vehicle;

( e) transport vehicle; J
(i) road-roller;

c Q) motor vehicle of a specified description.

14. Currency of licences to drive motor vehicles.-(/) A learner's

licence issued under this Act shall, subject to the other provisions of
this Act, be effective for a period of six months from the date of issue
of the licence.
D
(2) A driving licence _issued or renewed under this Act shall.-

(a) in the case of a licence to drive a transport vehicle, be effective ...

for a period of three years:

Provided that in the case of licence to drive a transport vehicle carrying

E
goods of dangerous or hazardous nature be effective for a period of
one year and renewal thereof shall be subject to the condition that the
driver undergoes one day refresher course of the prescribed syllabus;
and

(b) in the case of any other licence,-

F
(i) if the person obtaining the licence, either originally or on renewal >·
thereof, has not attained the age of fifty years on the date of issue or,
as the case may be, renewal thereof,-

(A) be effective for a period of twenty years from the date of such
G issue or renewal; or

(B) until the date on which such person attains the age of fif:y years,
whichever is earlier; ,...
(ii) if the person referred to in sub-clause (i), has attained the age of
H fifty years on the date of issue or as the case may be, renewal
 NATIONAL INSURANCE CO.LTD. v.SWARAN SINGH [V.N. KHARE, CJ.] J95

thereof, be effective, on payment of such fee as may be prescribed, A

for a period of five years from the date of such issue or renewal:

Provided that every driving licence shall, notwithstanding its expiry

under this sub-section continue to be effective for a period of thirty
days from such expiry,
B
15. Renewal of driving licences.-( I) Any licensing authority may,
on application made to it, renew a driving licence issued under the
provisions of this Act with effect from the date of its expiry: Provided
that in any case where the application for the renewal of a licence is
made more than thirty days after the date of its expiry, the driving
licence shall be renewed with effect from the date of its renewal. c
Provided further that where the application is for the renewal of a
licence to drive a transport vehicle or where in any other case the
applicant has attained the age of forty years, the same shall be
accompanied by a medical certificate in the same form and in the
same manner as is referred to in sub-section (3) of section 8, and the D
provisions of sub-section {4) of section 8 shall, so far as may be,
apply in relation to every such case as they apply in relation to a
r• learner's licence.

(2) An application for the renewal of a driving licence shall be

made in such form and accompanied by such documents as may be
E
prescribed by the Central Government.

(3) Where an application for the renewa.I of a driving licence is

made previous to, or not more than thirty days after the date of its
expiry, the fee payable for such renewal shall be such as may be
F
prescribed by the Central Government in this behalf.
....,
t (4) Where an application for the renewal of a driving licence is
made more than thirty days after the date of its expiry the fee payable
for such renewal shall be such amount as may be prescribed by the
Central Government: G
Provided that the fee referred to in sub-section (3) may be accepted
by the licensing authority in respect of an application for the renewal
of a driving licence made under this sub-section if it is satisfied that
the applicant was prevented by good and sufficient cause from applying
within the time sp(!cified in sub,section (3): H
 196 SUPREME COURT REPORTS [2004] I S.C.R.

A Provided further that if the application is made more than five years
after the driving licence has ceased to be effective the licensing
authority may refuse to renew the driving licence unless the applicant,
undergoes and passes to its satisfaction the test of competence to
drive referred to in sub-section (3) of section 9.

B (5) Where the application for renewal has been rejected, the fee
paid sh al I be refunded to such extent and in such manner as may be
prescribed by the Central Government. )

(6) Where the authority renewing the driving licence is not the
authority which issued the driving licence it shall intimate the fact of
c renewal to the authority which issued the driving licence.

16. Revocation ofdriving licence on grounds ofdisease or disability.-

Notwithstanding anything cont(\ined in the foregoing sections, any
licensing authority may at any time revoke a driving licence or may
require, as a condition of continuing to hold such driving licence, the
D holder the_reof to produce a medical certificate in the same form and
in the same manner as is referred to in sub-section (3) of section 8
if the licensing authority has reasonable grounds to believe that the
holder of the driving licence is, by virtue of any disease or disability,
unfit to drive a motor vehicle and where the authority revoking a
E driving licence is not the authority which issued the same, it shall
intimate the fact of revocation to the authority which issued that
licence."

Section 19 provides for power of the licensing authority to disqualify

from holding a driving licence or revoke such licence.
F
Section 20 empowers the court to disqualify a person in the event a
person is convicted of an offence under the Motor Vehicles Act or of an
offence in the commission of which a motor vehicle was used.

Section 21 provides for suspension of driving licence. in certain cases.

G Section 23 provides for effect of disqualification order. Section 27 provides
for the power of the Central Government to make ru Jes.

Chapter II of the Act deals with the provisions of licensing of drivers

of motor vehicles.
H ' Act provides for requirements of policies and limits
Section 147 of the
 NATIONAL INSURANCE CO LTD. v.SWARAN SINGH [V.N. KHARE, CJ.] J97

ofliability. Section 149 provides for the duty of insurers to satisfy judgments A
and award against persons insured in respect of third party risks. Sub-section
(I) of Section 149 postulates that in the event of a certificate of insurance has
been issued in tenns of Section sub-section (3) of Section 147 a judgment or
award in respect of any such liability is obtained by the insured, the insurer
notwithstanding its entitlement to avoid or cancel or may have avoided or B
cancelled the policy, the insurer shall, subject to the provisions of this section,
pay to the person entitled to the benefit of the decree any sum not exceeding
the sum assured payable thereunder, as if he were the judgment debtor, in
respect of the liability, together with any amount payable in respect of costs
and any sum payable in respect of interest on that sum by virtue of any
enactment relating to interest on judgments. Sub-section (2) of Section 149 C
of the Act, however, seeks to make an exception thereto. Sub-sections (4),
(5) and (7) of Section 149 read thus :

"(4) Where a certificate of insurance has been issued under sub-

section (3) of section 147 to the person by whom a policy has been
effected, so much of the policy as purports to restrict the insurance D
of the persons insured thereby by reference to any condition other
than those in clause (b) of sub-section (2) shall, as respects such
liabilities as are required to be covered by a policy under clause (b)
of sub-section (I) of section 147, be of no effect:

Provided that any sum paid by the insurer in or towards the discharge E
of any liability of any person which is covered by the policy by virtue
only of this sub-section shall be recoverable by the insurer from that
person.

(5) If the amount which an insurer becomes liable under this F

section to pay in respect of a liability incurred by a person insured by
a policy exceeds the amount for which the insurer would apart from
the provisions of this section be liable under the policy in respect of
that liability, the insurer shall be entitled to recover the excess from
that person.
G
(7) No insurer to whom the notice referred to in sub-section (2)
or sub-section (3) has been given shall be entitled to avoid his liability
to any person entitled to the benefit of any such judgment or award
as is referred to in sub-section (I) or in such judgment as is referred
to in sub-section (3) otherwise than in the manner provided for in
sub-section (2) or in the corresponding law of the reciprocating H
 198 SUPREME COURT REPORTS [2004] I S.C.R.
y
A country, as the case may be."

Sections 165 of the Act provides as under :

"165. Claims Tribunals.-{!) A State Government may, by notification

in the Official Gazette, constitute one or more Motor Accidents Claims
B Tribunals (hereafter in this Chapter referred to as Claims Tribunal)
for such area as may be specified in the notification for the purpose
of adjudicating upon claims for compensation in respect of accidents
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.
c
Explanation-For the removal of doubts, it is hereby declared that
~he expression "claims for compensation in respect of accidents
involving the death of or bodily injury to persons arising out of the
use of motor vehicles" includes claims for compensation under section
140 [and section 163A].
D
(2) A Claims Tribunal shall consist of such number of members
as the State Government may think fit to appoint and where it consists.
of two or more members, one of them shall be appointed as the
-
Chairman thereof.
E (3) A person shall not be qualified for appointment as a member
of a Claims Tribunal unless he -
(a) is, or has been, a Judge of a High Court, or
(b) is, or has been a District Judge, or
F (c) is qualified for appointment as a High Court Judge [or as a
District Judge].
(4) Where two or more Claims Tribunals are constituted for any area,
the State Government, may by general or special order, regulate the
distribution of business among them."
G
Section 168 of the Act provides as follows :

"168. Award of the Claims Tribunal.- On receipt of an application

for compensation made under section 166, the Claims Tribunal shall,
after giving notice of the application to the insurer and after giving
H the parties (including the insurer) an opportunity of being heard, hold
 NATIONAL INSURANCE CO. LTD. 1'.SWARAN SINGH [V.N. KHARE, CJ.] J99

an inquiry into the claim or, as the case niay be, each of the claims A
and, subject to the provisions of section 162 may make an award
detennining the amount of compensation which appears to it to be
just and specifying the person or persons to whom compensation
shall be paid and in making the award the Claims Tribunal shall
specify the amount which shall be paid by the insurer or owner or
driver of the vehicle involved in the accident or bv all or any of them, B
as the case may be;

Provided that where such application makes a claim for

compensation under section 140 in respect of the death or pennanent
disablement of any person, such claim and any other claim (whether C
made in such application or otherwise) for compensation in respect
of such death or permanent disablement shall be disposed of in
accordance with the provisions of Chapter X.

(2) The Claims Tribunal shall arrange to deliver copies of the

award to the parties concerned expeditiously and in any case within D
a period of fifteen days from the date of the award.

(3) When an award is made under this section, the person who is
required to pay any amount in terms of such award shall, within
thirty days of the date of announcing the award by the Claims Tribunal,
deposit the entire amount awarded in such manner as the Claims E
Tribunal may direct."

Mr. Harish Salve and Mr. M.L. Verma, learned senior counsel appearing
on behalf of the insurer made the following submissions in support of these
petitions.

(I) The insurer in terms of sub-section (2) of Section 149 of the Act F
has an absolute right to raise a defence specified, inter alia, in
> sub-clause (ii) of clause (a) thereof;
(2) Such a right being clear and unequivocal having regard to the
judgment of this Court in National Insurance Company Ltd.,
Chandigarh V. Nicolle/la Rohtagi and Ors., (2002) 7 sec 456 G
must be allowed to be invoked by the insurer to its full effect.
In the proceedings before the Tribunal, the insurers, thus, were
entitled to show that the vehicle involved in the accident at the
material point of time was driven by a person who was not 'duly
licensed' or was 'disqualified to hold a licence'. H
 200 SUPREME COURT REPORTS [2004] I S.C.R.
y
A (3) A person cannot be said to be 'duly licensed' unless he has been
granted a permanent licence for driving a particular vehicle in
terms of the provisions of Chapter II of the Motor Vehicles Act
and, thus, a vehicle cannot be held to be driven by a person duly
licensed .therefor if: (a) he does not hold a licence; (b) he holds
a fake licence; (c) he holds a licence but the validity thereof has
B expired; or (d) he does not hold a licence for the type of vehicle
which he was driving in terms of Chapter II of the Motor Vehicles
Act, 1988, or (e) he holds merely a learner's licence. Reliance in
this behalf has been placed on New India Assurance Co. Ltd. v.
Mandar Madhav Tambe and Ors., [ 1996] 2 SCC 328 and United
c India Insurance Co. ltd. v. Gian Chand and Ors., [1997] 7 SCC
558.

(4) Once the defence by the insurer is established in the proceedings

before the Tribunal, it is bound to discharge the insurer and fix
the liability only on the owner and/or the driver of the vehicle.
D (5) Once it is held that the insurer has been able to establish its
defence, the Tribunal or the Court cannot direct the insurance •
companies to pay the awarded amount to the claimant and in
tum recover the same from the owner and the driver of the ""
vehicle.
E The decisions of this Court in New India Assurance Co., Shim/a v.
Kanda and Ors etc., [2001] 4 SCC 342 and United India Insurance Company
ltd. v. lehru and Ors., [2003] 3 SCC 338 wherein it has been held that the
court is entitled to issue a direction upon the insurer to satisfy the award and
thereafter recover the same from the owner of the vehicle do not lay down
F the correct law and should be overruled.
;.
Thr learned counsel appearing on behalf of the respondents, who are
third party claimants on the other hand, submitted:

(i) that the Parliament deliberately used two different expressions

'effective licence' in Section 3 and 'duly licensed' in sub-section
G
(2) of Section 149 of the Act which are suggestive of the fact
that a driver once licensed, unless he is disqualified, would
continue to be a duly licensed person for the purpose of Chapter
XI of the Act.
(ii) Thus, once a person has been duly licensed but has not renewed
H
 NATIONAL INSURANCE CO.LTD. v.SWARAN SINGH [V.N. KHARE. CJ.] 201

1 his licence, the same would not come within the purview of A
Section 149 and thus would not constitute a statutory defence
available to the insurer in terms thereof. Only in the event of
lapse of five years from the date of expiry of the licence, such
statutory defence may be raised.

(iii) Once a certificate of insurance is issued in terms of the provisions B

of the Act, the insurer has a liability to satisfy an award. It has
been pointed that a major departure has been made in the 1988
\ Act insofar as in terms of Section 96(2)(b) of the 1939 Act all
the statutory defences were available in terms of sub-section (3)
thereof .provided that the policy conditions other than those
prescribed therein had no effect; whereas in the new Act, Section c
149(2)(a) prescribes that the policy is void if it is obtained by
non-disclosure of material fact. Section 149(4) confines to only
clause (b) and states that the conditions of policy except as
mentioned in clause (b) of sub-section (2) are of no effect and,
thus, after the amendment, except in cases which are covered D
under clause (b) of Section 149, the insurance companies are
liable to pay to the third parties. In other words, the right of
insurer to avoid the claim of the third party would arise only

" when the policy is obtained by misrepresentation of material fact

and fraud and in no other case.
E
(iv) Sub-section (I) of Section 149 makes it clear that the insurer
should pay first to the third parties and recover the same if they
are absolved on any of the grounds specified in sub-section (2)
thereof. Reliance, in this connection, has been placed on BIG
Insurance Co. Ltd. v. Captain ltbar Singh and Ors., AIR (1959)
SC 1331 and New India Assurance Company v. Kanila and Ors., F
.~
[200 lJ 4 sec 342 .
,. (v) The burden to prove the defence raised by the insurers as regard
the question as to whether there has been any breach of violation
of policy conditions of the insurance policy has been issued or
not, would be upon the insurer. G
(vi) The breach on the part of the insured must be a wilful one being
of fundamental condition by the insured himself and the burden
of proof, therefore, would be on the insurer.

(vii) With a view to avoid its liabilities it is not sufficient for the
H
 202 SUPREME COURT REPORTS [2004] I S.C.R.

A insurer to show that the person driving at the time of accident

was not duly licensed but it must fu1iher be established that there
was a breach on the part of the insured. Reliance, in this
connection, has been placed on Narcinva v. Karnath and Anr., v.
Alfredo Antonio Doe Martins and Ors., [1985] 2 SCC 574,
Skandia Insurance Company Ltd. v. Kokilaben Chandevadan and
B Ors., [1987] 2 SCC 654, Sohan Lal Passi v. P. Sesh Reddy and
Ors., [1996] 5 SCC 21 and United India Insurance Company
Ltd. V. Lehru and Ors., [2003] 3 sec 338.

Before we deal with various contentions raised by the parties 1t 1s

C desirable to look into the legislative history of the provisions for its
interpretation. The relevant provisions of the Act indisputably are beneficent
to the claimant. They are in the nature of a Social Welfare Legislation.

Chapter XI of the Motor Vehicles Act, 1988, inter alia, provides for
compulsory insurance of vehicles in relation to the matters specified therefor.
D The provision for compulsory insurance indisputably has been made inter
a/ia with a view to protect the right of a third party.

This Court in Sohan Lal Passi (supra) noted:

"10. The road accidents in India have touched a new height. In majority
E of cases because of the rash and negligent driving, innocent persons
become victims of such accidents because of which their dependants
in many cases are virtually on the streets. In this background, the
question of payment of compensation in respect of motor accidents
has assumed great importance for public as well as for courts.
Traditionally, before the Court directed payment of tort compensation,
F it had to be established by the claimants that the accident was due to
the fault of the person causing injury or damage. Now from different
judicial pronouncements, it shall appear that even in western countries
fault is being read and assumed as someone's negligence or
carelessness. The Indian Parliament, being conscious of the magnitude
of the plight of the victims of the accidents, have introduced several
G
beneficial provisions to protect ·the interest of the claimants and to
enable them to claim compensation from the owner or the insurance
company in connection with the accident."

The intention of the Parliament became further evident when in the

H Motor Vehicles Act, 1939, a new chapter being Chapter VllA dealing with
 NATIONAL INSURANCE CO.LTD. v.SWARAN SINGH [V.N. KHARE, CJ] 203

(
,.. insurance of motor vehicles against third party risks was introduced and the A
beneficent provisions contained ~n the Motor Vehicles Act, 1939 were fu1ther
made liberal by reason of the Motor Vehicles Act, 1988 and the amendments
carried out therein from time to time in aid of the third party claims by way
of grant of additional or new rights conferred on the road accident victims.

Under the common law a person injured by reason of another person's B

wrongdoing had no right of action against insurers who undertook to indemnify
the wrongdoer. The first invasion of this principle took place by reason of
1 Third Parties (Rights against Insurers) Act, I 930. The British Parliament in
the light of the aforementioned Act enacted the Road Traffic Act, I 930
which has since been replaced by Road Traffic Act, I 988.
c
The Third Pa1ties (Rights Against Insurers) Act I 930 was enacted with
a view to correct injustice effecting a statutory assignment of the rights of the
assured to the injured person as prior thereto the right of a person to be
indemnified under a contract of insurance against claims made against him
by persons whom he might have injured was one personal to himself, and D
there was no privity of any sort between the injured person and the insurers.
The injured person had no interest either at law or in equity in the insurance
,,. money, either before or after it was paid by the insurers to the assured. In a
case where the assured became bankrupt and if the injured person had not
already obtained judgment and levied execution of his claim for damages his
only right was to move in the bankruptcy or the winding-up of proceedings. E
The beneficial provisions of the aforementioned English statutes were
incorporated by the Parliament of India while enacting the Motor Vehicles
Act, I 939 which has also since been repealed and replaced by the Motor
Vehicles Act, I 988.
F
Concededly different types of insurance covers are issued containing
..... different nature of contract of insurance. We are, however, in this batch of
} cases mainly concerned with third party right under the policy. Any condition
in the insurance policy, whereby the right of the third party is taken away,
would be void.
G
Indisputably such a benefit to a third party was provided under the
Statute keeping in view the fact'that the conditions in the assured's policy
may not be of no or little effect in relation to a claim by a person to whom
an -assured was under a compulsorily insurable liability.

Jn this context, it is necessary to consider as to what is a third party H

 204 SUPREME COURT REPORTS (2004] I S.C.R.

A right. A third party claim arises when a vktim of an accident suffers a bodily
injury or death as a result thereof or his property is damaged. An accident
is not susceptible to a very precise definition.

The popular and ordinary sense of the word was ."an unlooked-for
mishap or an untoward event which is not expected or designed".
B
In R. v. Morris, (1972) 1 W.L.R. 228, the Court of Appeal defined the
word as an "unintended occurrence which has an adverse physical result".
The Supreme Court of Canada in Pickford & Black ltd. v. Candian General
Insurance Co., ( 1976) 2 Lloyd's Rep. I 08), stated the law thus :-

C "The meaning to be attached to the word "accident" as employed

in the body of an insurance policy was thoroughly explored by Mr.
Justice Pigeon in the reasons for judgment which he delivered on
behalf of the majority of this Court in The Canadian Indemnity Co.
v. Walkem Machinery & Equipment Ltd., (1975) D.L.R. (3d) I. In the
course of these reasons at p. 5 he adopted the views expressed by Mr.
D Justice Freedman, in a dissenting opinion in the Court of Appeal of
Manitoba in Marshall Wells of Canada ltd. v. Winnipeg Supply and
Fuel, R. Litz & Sons Co. v. Candian General Insurance Co., (1964)
49 W.W.R. 644 at p. 665 where that learned Judge said :

With respect, I am of the view that what occurred here

E
was an accident. One must avoid the danger of construing that
tenn as if it were equivalent to "inevitable accident." That a
mishap might have been avoided by the exercise of greater care
and diligence does not automatically take it out of the range of
accident. Expressed another way, "negligence" and "accident"
F as here used are not mutually exclusive terms. They may co-
exist.
After expressing the view that even an occurrence which is the
result of a calculated risk or of a dangerous operation may come
within the meaning of the word "accident", Mr. Justice Pigeon went
G on to say at p. 6 :

While it is true that the word "accident" is sometimes used to

describe unanticipated or unavoidable occurrences, no dictionary need
be cited to show that in every day use, the word is applied as Halsbury
says ... to any unlooked for mishap or occurrence ... this is the proper
H test..."
 NATIONAL INSURANCE CO. LTD. r.SWARAN SINGH [V N. KHARE, CJ.] 205
In Halsbury's Laws of England, Fourth Edition Reissue, it is stated: A
"An injury caused by the willful or even criminal act of a third
person, provided the assured is not a party or privy to it, is to be
.. regarded as accidental for the purposes of the policy, since from the
assured's point of view it is not expected or designed."
B
In Colinvaux's Law of Insurance (6th Edition) page 304, the following
·{ illustration is given :

"If a man walks and stumbles, thus spraining his ankle, the injury
is accidental for while he intends to walk he does not intend to
stumble. In Hamlyn v. Crown Accidental Insurance the assured's c
injury was due to stooping forward to pick up a marble dropped by
a child as it rolled from him. He stood with his legs together, separated
his knees, leaned forward and made a grab at the marble, and in
doing so wrenched his knee. The injury was held by the Court of
Appeal to be accidental, on the ground that the assured did not intend
to get into such a position that he might wrench his knee." D
... .,. At para 17-13 of the said treatise it is stated :

"Accident includes negligence

It makes no difference that the accident was caused by the E

negligence of the assured (as opposed to his intentional act). Thus
there is an accident where the assured crosses a railway line without
exercising due care and is knocked down by an approaching train. In
fact, one of the commonest causes of accidents is negligence, and an
accident policy applies, excepted perils apart, whether the injury is
caused by the negligent act of the assured himself or of a third party." F

) A right of the vict.m of a road accident to claim compensation is a

statutory one. He is a victim of an unforeseen situation. He would not ordinarily
have a hand in it The negligence on the part of the victim may, however,
be contributory. He has suffered owing to wrongdoing of others. An accident G
may ruin an entire family. It may take away the only earning member. An
accident may result in the Joss of her only son to a mother. An accident may
take place for variety of reasons. The driver of a vehicle may not have a hand
in it. He may not be found to be negligent in a given case. Other factors such
as unforeseen situation, negligence of the victim, bad road or the action or
inaction of any other person may lead to an accident. H
 206 SUPREME COURT REPORTS [2004] I S.C.R.

A A person suffering grievous bodily injury may require money for his
survival/medical treatment. Statutory compensation paid to the next of kin of
the victim of an accident may, thus, bring to a large number of families the
only ray of light at the end of the tunnel.

In other words, what would also he covered by the contract of insurance

B vis-a-vis the beneficent statutory provisions like Sub-Section (2) of Section
149 of the said Act would be when a death or bodily injury has been caused
as a result of assured's own voluntary act. Even an unforeseeable result of
assured's deliberate act may cume within the purview of the accident. Even
if an accident has occurred due to negligent driving of the assured person, it
C may not prevent recovery under the policy and certainly thereby a third party
would not be non-suited.

How<:ver, we may notice that in C.M Jaya 's case (supra), a Constitution
Bench of this Court held that the liability of the insurer will have to be
determined having regard to the question as to whether any extra premium
D is paid or not. It was observed :

" ... The said decision cannot be read as laying down that even though
the liability of the Insurance Company is limited to the statutory
requirement, an unlimited or higher liability can be imposed on it.
The liability could be statutory or contractual. A statutory liability
E cannot be more than what is required under the statute itself. However,
there is nothing in Section 95 of the Act prohibiting the parties from
contracting to create unlimited or higher liability to cover wider risk.
In such an event, the insurer is bound by the terms of the contract as
specified in the policy in regard to unlimited or higher liability as the
case may be. In the absence of such a term or clause in the policy,
F pursuant to the contract of insurance, a limited statutory liability cannot
be expanded to make it unlimited or higher. If it is so done, it amounts
to rewriting the statute or the contract of insurance which is not
permissible."

G For the aforementioned reasons, the provisions contained in Chapter XI

of the Motor Vehicles Act, 1988 must be construed in that light.

Sub-section (1) of Section 149, casts a liability upon the insurer to pay
-to the person entitled to the benefit of the decree as if he were the judgment
debtor. Although the said liability is subject to the provision of this section,
H it prefaces with a non-obs/ante clause that the insurer may be entitled to
 NATIONAL INSURANCE CO.LTD. 1·.SWARAN SINGH [V.N. KHARE, CJ.] 207
avoid or cancel or may have avoided or cancelled the policy. Furthermore, A
the statute raises a legal fiction to the effect that for the said purpose the
insurer would be deemed to be judgment debtor in respect of the liability of
the insurer.

In Halsbury's Laws of England, Fourth Edition Reissue, Volume 25, it

is stated: B
"743. Benefits conferred on third parties by the Road Traffic Act,
1930. It was against the background of the Third Parties (Rights
against Insurers) Act 1930 that the Road Traffic Act 1930 (now
replaced by the Road Traffic Act 1988), was passed. It was realised C
that, unless some alterations were made in the rights to which the
third party wa3 by the first-named Act subrogated, those rights would
frequently be of little, if any, value._ Accordingly, it was provided that
certain conditions in the assured's policy were to be of no effect in
relation to a claim by a person to whom an assured was u·nder a
compulsorily insurable liability. The conditions to that extent avoided D
are any conditions providing (I) that no liability is to arise, or (2) that
any liability which has arisen is to cease, in the event of some specified
thing being done, or omitted to be done, after the occurrence of the
event giving rise to the claim. If, therefore, any admission of liability
is made after an accident contrary to a condition in the policy, or if,
contrary to a condition in the policy, proper notice of the accident is E
not given to the insurers, the injured third pa11y is not affected so far
as his claim is concerned."

This Court in Nicol!etla Rohtagi (supra) which has since been followed
in Sadhana Lodh v. National Insurance Company Ltd. and Anr. reported in
((2003) I SCR 567] in no uncertain terms held that the defence available to
F
an insurance company would be a limited one.

The question as to whether an insurer can avoid its liability in the event
it raises a defence as envisaged in Sub-section (2) of Section 149 of the Act
corresponding to Sub-section (2) of Section 96 of the Motor Vehicles Act, G
1939 had been the subject matter of decisions in a large number of cases.

1t is beyond any doubt or dispute that under Section 149(2) of the Act
an insurer, to whom notice of the bringing of any proceeding for compensation
has been given, can defend the action on any of the grounds mentioned
ili~in. H
 208 SUPREME COURT REPORTS (2004] I S.C.R.

A Ho\vever, Clause (a) opens with the words "that there has been a breach
of a specified condition of the policy", implying that the insurer's defence of
the action would depend upon the terms of the policy. The said sub-clause
contains three conditions of disjunctive character, namely, the insurer can get
away from the liability when (a) a named person drives the vehicle; (b) it was
B being driven by a person who did not have a duly granted licence; and (c)
driver is a person disqualified for holding or obtaining a driving licence.

We may also take note of the fact that whereas in Section 3 the words
used are 'effective licence', it has been differently worded in Section 149(2)
i.e. ' duly licensed'. If a person does not hold an effective licence as on the
C date of the accident, he may be liable for prosecution in terms of Section 141
of the Act but Section 149 pertains to insurance as regard third party risks.

A provision of a statute which is penal in nature vis-a-vis a provision

which is beneficent to a third party must be interpreted differently. It is also
well known that the provisions contained in different expressions are ordinarily
D construed differently.

The words 'effective licence' used in Section 3, therefore, in our opinion

cannot be imported for sub-section (2) of Section 149 of the Motor Vehicles
Act. We must also notice that the words 'duly licensed' used in Sub-section
(2) of Section 149 are used in past tense.
E
Thus, a person whose licence is ordinarily renewed in terms of the
Motor Vechiles Act and the rules framed thereunder despite the fact that
during the interregnum period, namely, when the accident took place and the
date of expiry of the licence, he did not have a valid licence, he could during
the prescribed period apply f.or renewal thereof and could obtain the same
F automatically without undergoing any further test or without having been
declared unqualified therefor. Proviso appended to Section 14 in unequivocal
term states that the licence remains valid for a period of thirty days from the
day of its expiry.

G Section 15 of the Act does not empower the authorities to reject an

application for renewal only on the ground that there is a break in validity
or tenure of the driving licence has lapsed as in the meantime the provisions
for disqualification of the driver contained in Sections 19, 20, 21, 22, 23 and
24 will not be attracted, would indisputably confer a right upon the person
to get his driving licence renewed. In that view of the matter he cannot be
H said to be delicensed and the same shall remain valid for a period of thirty
 NATIONAL INSURANCE CO. LTD. v.SWARAN SINGH [V.N. KHARE, CJ.] 209

days after its expiry. A

If a person has been given a licence for a particular type of vehicle as
specified therein, he cannot be said to have no licence for driving another
type of vehicle which is of the same category but of different type. As for
example when a person is granted a licence for driving a light motor ve.hicle
he can drive either a car or a jeep and it is not necessary that he must have B
driving licence both for car and jeep separately.

Furthermore, the insurance company with a view to avoid its liabilities

is not only required to show that the conditions laid down under Section
149(2)(a) or (b) are satisfied but is further required to establish that there has C
been a breach on the part of the insured. By reason of the provisions contained
in the 1988 Act, a more extensive remedy has been conferred upon those
who have obtained judgment against the user of a vehicle and after a certificate
of insurance is delivered in terms of Section 147(3) a third party has obtained
a judgment against any person insured by the policy in respect of a liability
required to be covered by Section 145, the same must be satisfied by the D
insurer, notwithstanding that the insurer may be entitled to avoid or to cancel
the policy or may in fact have done so. The same obligation applies in
respect of a judgment against a person not insured by the policy in respect
of such a liability, but who would have been covered if the policy had
covered the liability of all persons, except that in respect of liability for death
or bodily injury. E
Such a breach on the part of the insurer must be established by the
insurer to show that not only the insured used or caused or permitted to be
used the vehicle in breach of the Act but also that the damage he suffered
flowed from the breach.
F
Under the Motor Vehicles Act, holding of a valid driving licence is one
of the conditions of contract of insurance. Driving of a vehicle without a
valid licence is an offence. However, the question herein is whether a third
party involved in an accident is entitled to the. amount of compensation
granted by the Motor Accidents Claims Tribunal although the driver of the G
vehicle at the relevant time might not have a valid driving licence but would
be entitled to recover the same from the owner or driver thereof.

-"\ It is trite that where the insurers relying upon the provisions of violation
of law by the assured takes an exception to pay the assured or a third pa1iy,
they must prove a wilful violation of the law by the assured. In some cases H
 210 SUPREME COURT REPORTS [2004] t S.C.R.

A violation of criminal law, particularly, violation of the provisions of the +

Motor Vehicles Act may result in absolving the insurers but, the same may
not necessarily hold good in the case of a third party. In any event, the
exception applies only to acts done intentionally or "so recklessly as to
denote that the assured did not care what the consequences of his act might
be".
B
In Narvinva' case (supra), a Division Bench of this Court observed :

" ...The insurance company complains of breach of a term of contract {

which would permit it to disown its liability under the contract of
insurance. If a breach of term of contract permits a party to the
c contract to not to perform the contract, the burden is squarely on that
party which complains of breach to prove that.the breach has been
committed by the other party to the contract. The test in such a
situation would be who would fail if no evidence is led ... "

In Skandia 's case (supra), this Court held :

D
"Section 96(2)(b)(ii) extends immunity to the insurance company if
a breach is committed of the condition excluding driving by a named
person or persons or by any person who is not duly licensed, or by
any person who has been disqualified from holding or obtaining
driving licence during the period of disqualification. The expression
E
"breach" is of great significance. The dictionary meaning of"breach"
is "infringement or violation of a promise or obligation" (See Collins
English Dictionary). It is, therefore, abundantly clear that the insurer
will have to establish that the insured is guilty of an infringement or
violation of the promise that a person who is duly licensed will have
F to be in charge of the vehicle. The very concept of infringement or
violation of the promise that the expression "breach" carries within
itself induces an inference that the violation or infringement on the
part of the promise must be wilful infringement or violation. tf the
insured is not at all at fault and has not done anything he should not
have done or is not amiss in any respect, how can it be conscientously
G posited that he has committed a breach ? It is only when the insured
himself places the vehicle in charge of a person who dies not hold a
driving licence, that it can be said that he is ·'guilty" of the breach of
the promise that the vehicle will be driven by a licensed driver. It
must be established by the insurance company that the breach was on
I-I the part of the insured and that it was the insured who was guilty of
 NATIONAL INSURANCE CO. LTD. v.SWARAN SINGH [V.N. KHARE, CJ] 211

violating the promise or infringement of the contract. Unless the A

insured is at fault and is guilty of a breach, the insurer cannot escape
from the obligation to indemnify the insured and successfully contented
that he is exonerated having regard to the fact that the promisor (the
insured) committed a breach of his promise. Not when some mishap
occurs by some mischance. When the insured has done everything
within his power inasmuch as he has engaged a licensed driver and B
has placed the vehicle in charge of a licensed driver, with the express
or implied mandate to drive it himself, it cannot be said that the
insured is guilty of any breach."

In B.V. Nagaraju v. Mis. Oriental Insurance Co. Ltd., AIR (19%) SC C

2054, Punchhi, J. speaking for the Division Bench followed Skandia (supra)
and read down the exclusionary term of the insurance policy to serve the
main purpose thereof, holding :

"The National Commission went for the strict construction of the

exclusion clause. The reasoning that the extra passengers being carried D
in the goods vehicle could not have contributed, in any manner, to
the occurring of the accident, was barely noticed and rejected sans
any plausible account; even when the claim confining the damage to
the vehicle only was limited in nature. We, thus, are of the view in
accord with the Skandia 's case (AIR 1987 SC 1184 ), the aforesaid
exclusion term of the insurance policy must be read down so as to E
serve the main purpose of the policy that is indemnify the damage
caused to the vehicle, which we hereby do."

A contract of insurance also falls within the realm of contract. Thus,

like any other contract, the intention of the parties must be gathered from the
expressions used therein. F

lvamy in his treatise 'Fire and Motor Insurance' (2nd Edition) at page
272-273 narrated an interesting case concerning Employment of "under age"
driver in Sweeney v. Kennedy, (1948), 82, L.l.L. Rep. 294 at 297 as under
G
"In Sweeney v. Kennedy the proposer in answer to a question
stating "Are any of your drivers under twenty-one years of age or
with less than twelve months' experience" replied "No". One of the
lorries covered by the policy was involved in an accident whilst it
was being unloaded, and a third party was fatally injured. At the time H
 212 SUPREME COURT REPORTS [2004) l S.C.R.

A of the accident it was being driven by the insured's son, who had +
twelve months' driving experience but was under twenty-one. When
a claim for an indemnity was made against the insurance company,
payment was refused on the ground that the employment of a driver
under twenty-one years of age amounted to such an alteration in the
character of the risk as would avoid the policy.
B
Kingsmill Moore, J., giving judgment in the Eire Divisional. Cou1i,
rejected this argument and held that the company was liable. He said
that whether a change of risk was so great as to avoid an insurance
must always be a question of degree and a question of the opinion of
the Court on the circumstances of the case. He could see a vast
c difference between the risks involved in insuring a merchantman and
a privateer; a smaller but still very substantial difference between the
risk involved in insuring an explosive and non-explosive demolition;
and a very exiguous difference between the risks of insuring when a
driver was under or over twenty-one.
D
He then observed :

"The law provides that licences to drive motor vehicles may be

given to persons of specified ages, the ages varying with the class of
the vehicle; and when a person is driving a vehicle of the category
which by his age he is entitled to drive, there is, I think, some
E
presumption that, as far as age reflects on competency, he is competent
to drive it. Certainly this would be an honest and reasonable view for
an insured person to take in a case where he had not been expressly 1-
limited by the terms of the policy to the employment of drivers over
21. Certain categories of vehicles may not, by law, be driven by
F persons under 21, and as the framework of the proposal form was apt
to cover an application for insurance of such vehicle, he might ~

reasonably consider that Q.9 was designed to all attention to this fact.
..
If insurers take a different view as to the proposer age of drivers from
the view of the law, it is open to them-indeed, I would say incumbent
upon them-to make this clear by the insertion of specific provisions
G
in the policy and not attempt to secure their ends by a side wind. I
hold that there was no such alteration in the subject-matter of the
insurance as would or could avoid the policy."

In the event the terms and conditions of policy are obscure it is

H permissible for the purpose of construction of the deed to look to the
 NATIONAL INSURANCE CO LTD. v.SWARAN SINGH [V.N. KHARE, CJ] 2 J)
surrounding circumstances as also the conduct of the parties. A
In Oriental Insurance Co. Ltd v. Sony Cheriyan, (1999] 6 SCC 451,
it has been held :

"The insurance policy between the insurer and the insured represents
a contract between the parties. Since the insurer undertakes to B
compensate the loss suffered by the insured on account of risks covered
by the insurance policy, the terms of the agreement have to be strictly
construed to determine the extent ofliability of the insurer. The insured
cannot claim anything more than what is covered by the insurance
policy. That being so, the insured has also to act strictly in accordance
with the statutory limitations or terms of the policy expressly set out C
therein."

Yet in Oriental Insurance Co. Ltd v. Samayanallur Primary Agricultural

Co-op. Bank, AIR (2000) SC 10, this Court laid down the law in the following
terms :
D
"The State Commission appreciated the real controversy between the
parties and decided the dispute on interpretation of the insurance
policies and the proposal produced before the District Forum. There
was no necessity of referring to the dictionaries for understanding the
meaning of the word 'safe' which the parties in the instant case are E
proved to have understood while submitting the proposal and accepting
the insurance policy. The cashier's box could not be equated with the
safe within the meaning of the insurance policy. The alleged burglary
and the removal of the cash box containing the jewellery and cash
was not covered by the insurance policy between .the parties: The
insurance policy has to be construed having reference only to the F
stipulations contained in it and no artificial far fetched meaning could
be given to the words appearing in it."

The courts also readily apply the doctrine of waiver in favour of the
insured and against the insurer.
G
The insurer's liability arises both from contract as well as statute. It
will, therefore, may not be proper to apply the rules for interpretation of a
contract for interpreting a statute.

The correctness of the decision rendered in Skandia 's case (supra) was
H
 I

214 SUPREME COURT REPORTS (200.J] I S.C.R.

A questioned and the matter was referred to a three-Judge Bench to which we +

shall advert to a little later.

Gian Chand's case (supra) relied on behalf of the petitioner is of not

much assistance. Therein this Court w.as dealing with peculiar fact situation
obtaining therein. In that case the insured admittedly did not have any driving
B licence and in that situation, the insurance company was held to be not liable.
The Bench noticed the purported conflict between the two sets of decisions
but did not refer the matter to a larger Bench. It merely distinguished the t
cases· on their own facts stating :

"Under the circumstances, when the insured had handed over the
c vehicle for being driven .by an unlicensed driver, the Insurance
Company would get exonerated from its liability to meet the claims
of the third party who might have suffered on account of vehicular
accident caused by such unlicensed driver. In view of the aforesaid
two sets of decisions of this Court, whicli deal with different fact
D situations, it cannot be said that the decisions rendered by this Court
in Skandia Insurance Co. ltd. v. Kokiolaben Chandravadan and the
decision of the Bench of three learned Judges in Sohan Lal in any
way conflict with the decisions rendered by this Court in the cases of
New India Assurance Co. Ltd. v. Mandar Madhav Tambe and
Kashiram Yadav v. Criental Fire & General Insurance Co."
E
There may be a case where an accident takes place without there being
fault on the part of the driver. In such an event, the question as to whether
a driver was holding a valid licence or not would become redundant. (See
Jitendra Kumar v. Oriental Insurance Co. ltd. and Anr., J.T. (2003) 5 SC
F 538).

Skandia (supra), on the other hand, has been approved by a three-Judge

Bench, when the correctness thereof was referred to a larger Bench in Sohan
Lal Passi 's case (supra), wherein a three-Judge Bench of this Court noticed
the ratio propounded in Skandia 's case (supra) and observed :
G " .. .In other words, once there has been a contravention of the condition
prescribed in Sub-section (2)(b)(ii) of Section 96, the person insured
shall not be entitled to the benefit of sub-section (I) of Section 96.
According to us, Section 96(2)(b)(ii) should not be interpreted in a
technical manner. Sub-section (2) of Section 96 only enables the
H insurance company to defend itself in respect of the liability to pay
 NATIONAL INSURANCE CO.LTD. l'.SWARAN SINGH [V.N. KHARE, CJ] 2J5

+ compensation on any of the grounds mentioned in sub-section (2) A

including that there has been a contravention of the condition excluding
the vehicle being driven by any person who is not duly licensed. This
bar on the face of it operates on the person insured. If the person who
has got the vehicle insured has allowed the vehicle to be driven by
a person who is not duly licensed then only that clause shall be
attracted. In a case where the person who has got insured the vehicle B
with the insurance company, has appointed a duly licensed driver and
if the accident takes place when the vehicle is being driven by a
person not duly licensed on the basis of the authority of the driver
duly authorised to drive the vehicle whether the insurance company
in that event shall be absolved from its liability ? The expression C
'breach' occurring in Section 96(2)(b) means infringement or violation
of a promise or obligation. As such the insurance company will have
to establish that the insured was guilty of an infringement or violation
of a promise. The insurer has also to satisfy the Tribunal or the Court
that such violation or infringement on the part of the insured was
wilful. If the insured has taken all precautions by appointing a duly D
licensed driver to drive the vehicle in question and it has not been
established that it was the insured who allowed the vehicle to be
driven by a person not duly licensed, then the insurance company
cannot repudiate its statutory liability under sub-section (I) of Section
96 ... " E
A bare perusal of the provisions of Section 149 of the Act leads to
only one conclusion that usual rule is that once the assured proved that the
accident is covered by the compulsory insurance clause, it is for the insurer
to prove that it comes within an exception.
F
In MacGillivray on Insurance Law it is stated:

"25-82 Burden of Proof: Difficulties may arise in connection with the

burden of proving that the facts of any particular case fall within this
exception. The usual rule is that once the assured has proved that the
case comes within the general risk, it is for the insurers to prove that G
it comes within an exception. It has therefore been suggested in some
American decisions that, where the insurers prove only that the assured
exposed himself to danger and there is no evidence to show why he
did so, they cannot succeed, because they have not proved that his
behaviour was voluntary or that the danger was unnecessary. Since
H
 216 SUPREME COURT REPORTS [2004] I S.C.R.

A an extremely heavy burden is imposed on the insurers if they have to

prove the state of mind of the assured, it has been suggested in
Canadian decisions that the court should presume that the assured
acted voluntarily and that, where he does an apparently dangerous
and foolish act; such danger was unnecessary, until the contrary is
shown. In practical terms, therefore, the onus does in fact lie on the
B claimant to explain the conduct of the assured where there !s not
apparent reason for exposing himself to an obvious danger."
r
In Rukmani and Others v. New India Assurance Co. ltd and Ors.,
(1999) ACJ I 71, this Court while upholding the defences available to the
C insurer to the effect that vehicle in question was not being driven by a person
holding a licence, held that the burden of the insurer would not be discharged
when the evidence which was brought on record was that the Inspector of
Police in his examination in chief merely stated, "My enquiry revealed that
the respondent No. I did not produce the licence to drive the abovesaid scooter.
The respondent No. I even after my demand did not submit the licence since
D he was not having it."

The proposition of law is no longer res integra that the person who
alleges breach must prove the same. The insurance company is, thus, required
to establish the said breach by cogent evidence. In the event, the insurance
company fails to prove that there has been breach of conditions of policy on
E the part of the insured, the insurance company cannot be absolved of its
liability. (See Sohan Lal Passi, (supra)

Apart from the above, we do not intend to lay down anything further
i.e. degree of proof which would satisfy the aforementioned requirement
inasmuch as the same would indisputably depend upon the facts and
F circumstances of each case. It will also depend upon the terms of contract of
insurance . Each case may pose different problem which must be resolved
having to a large number of factors governing the case including conduct of
parties as regard duty to inform, correct disclosure, suppression, fraud on the
insurer etc. It will also depend upon the fact as to who is the owner of the
G vehicle and the circumstances in which the vehicle was being driven by a
person having no valid and effective licence. No hard and fast rule can
therefor be laid down. If in a given case there exists sufficient material to
draw an adverse inference against either the insurer or the insured, the Tribunal
may do so. The pa11ies alleging breach must be held to have succeeded in
establishing the breach of conditions of contract of insurance on the part of
·H the insurer by discharging its burden of proof. The Tribunal, there cannot be
 NATIONAL INSURANCE CO. LTD. v.SWARAN SINGH [V.N. KHARE, CJ.] 217

any doubt, must arrive at a finding on the basis of the materials available on A·
records.

In the aforementioned backdrop, the provisions of sub-sections (4) and

(5) of Section 149 of the Motor Vehicles Act, 1988 may be considered as the
liability of the Insurer to satisfy the decree at the first instance.
B
A beneficent statute, as is well known, must receive a ,liberal
interpretation [See Bangalore Water Supply & Sewerage Board etc. v. A.
Rajappa and Ors etc., [1978] 2 SCC 213, Steel Authority of India Ltd. and
Ors. v. National Union Wate1front Workers and Ors., (2001] 7 SCC I, IT/
Ltd v. Siemens Public Communications Network ltd., (2002] 5 SCC 510,
Amrit Bhikaji Kale and Ors. v. Kashinath Janardhan Trade and Anr., [1983] C
3 SCC 437 and Kuna! Singh v. Union of India and Anr., [2003] 4 SCC 524.

The liability of the insurer is a statutory one. The liability of the insurer
to satisfy the decree passed in favour of a third party is also statutory.

In Halsbury's Laws of England, Fourth Edition Reissue, Volume 25, it D

is stated:

"749. Judgments required to be satisfied. The first condition of the

obligation of the insurers to pay on a judgment is that there is a
judgment.
E
The Second condition is that the judgment must be in respect of
a liability which is required to be covered by compulsory insurance.
In other words, the only person who can maintain a right of action
direct against the insurers is a person falling within the class of third
pa11ies whose bodily injury or death or damage to whose property is F
required to be covered by a motor policy.

The third condition is that the liability is, in fact, covered by the
terms of the policy, or would be covered but for the fact that the
insurer is entitled to avoid or cancel, or has avoided or cancelled, the
policy. For this purpose, conditions declared to be invalid as against G
a third party are ignored, hut if, eve11 after ignoring all such conditions,
the relevam use of the vehicle puts it outside the scope of the policy,
the insurers are le.ft immune. The most important clause in this
connection is the 'description of use' clause. The assured is criminally
liable if he uses his car for purposes outside the scope of his insurance
and, in addition to his criminal liability, he has to bear unaided the H
 218 SUPREME COURT REPORTS f2004] I S.C.R.

A cost of compensating third parties injured by his use if he is negligent.

Subject to the statutory provision rendering certain conditions invalid
against third parties, the insurers are not obliged to carry a wider
scope of liability that they have agreed by their policy to carry.

The fourth condition is that the judgment must be against a person

B insured by the policy. This language covers a permitted driver as well
as the person by whom the policy has been effected."
r
As has been held in Sohan Lal Passi (supra), the insurance company
cannot shake off its liabi!ity to pay the compensation only by saying that at
the relevant point of time the vehicle was driven by a person having no
C licence.

Thus, where a liability has been established by a judgment, it is not

permissible to look beyond the determination in order to establish the basis
of the liability.

D In United Insurance Co. Ltd. v. Jaimy and Ors., (1998) ACJ 1318, it
is stated:

"Section 149(2) relates to the liability of the insurer and speaks

of a situation in regard to which no sum shall be payable by an
insurer to whom notice of bringing of any such proceeding is given,
E could defend the action stated in the said statutory provision. The
contention in the context would be found in section 149(2)(a) in the
event of a breach of a specified condition of the policy enabling the
insurer to avoid liability in regard thereto. In the process in regard to
the right of the insurer to recover the amount from the insured, it
F would have to be seen by referring to section 149(4) successfully
recovered from the insured.

Section 149(4) says that where a certificate of insurance is issued,

so much of the said policy as purports to restrict the insurance of the
persons insured thereby by refen-ing to any of the conditions mentioned
G and it is prct:isely enacted in regard thereto and that the liability
covered by section 2(b) as are required to be covered by the policy
would not be available. The position is made further clear by the
provisions enacting that any sum paid by the insurer in or towards the
discharge of any liability of any person who is covered by the policy
by virtue of this Sub-section shall be recoverable by the insurer from
H that person.
 NATIONAL INSURANCE CO.LTD. v.SWARAN SINGH [V.N. KHARE, CJ.) 2 J9
In other words, section 149(4) considers the right of the insurance A
company in regard to re-imbursement of the amount paid by them
only in the context of a situation other than the one contemplated
under Section I49(2)(b). It would mean that except under the situation
provided by section l 49(2)(b), the insurer would not be in a position
to avoid the liability because he has got rights against the owner B
under the above provision.

· The learned counsel strenuously submitted that this would not be

the correct understanding and interpretation of the statutory provisions
of section 149 of the 1988 Act. The learned counsel submitted that
to read the statutory provision to understand that the insurance C
company could only claim from the owner in situations governed by
section l 49(2)(b) and to have no right under the said provision with
regard to other situations under section 149(2)(a) would not be the
proper reading of the statutory provision. The learned counsel
submitted that in fact the provision would have to be meaningfully
understood. It is not possible to consider the submission of the learned D.
counsel in the light of the plain language of the statutory provision.
It is necessary to emphasise that under the new Act the burden of the
insurance company has been made heavier in the context ofcontrolling
the need of taking up contentions to legally avoid the liabilities of the
insurance company.
E
The social need of the victim being compensated as enacted by the
Parliament was the subject matter of consideration before a three-Judge Bench
of this Court as early as in 1959 in British India General Insurance Co. Ltd.
v. Captain !tbar Singh and Ors., [1960) I SCR 168, wherein Sarkar, J speaking
for the Bench observed :
F
"Again, we find the contention wholly unacceptable. The Statute
\ has no doubt created a liability in the insurer to the injured person but
the statute has also expressly confined the right to avoid that liability
to certain grounds specified in it. It is not for us to add to those
grounds and therefore to the statute for reasons of hardship. We are G
furthermore not convinced that the statute causes any hardship. First,
the insurer has the right, provided he has reserved it by the policy, to
-..( defend the action in the name of the assured and if he does so, all
defences open to the assured can then be urged by him and there is
no other defence that he claims to be entitled to urge. He can thus
avoid all hardship if any, by providing for a right to defend the action H
 220 SUPREME COURT REPORTS [2004) I S.C.R.

A in the name of the assured and ihis he has full liberty to do. Secondly,
if he has been made to pay something which on the contract of the
policy he was not bound to pay, he can under the proviso to sub-s.(3)
and under sub-s.(4) recover it from the assured. It was said that the
assured might be a man of straw and the insurer might not be able
to recover anything from him. But the answer to that is that it is the
B insurer's bad luck. In such circumstances the injured person also
would not have been able to recover the damages suffered by him
from the assured, the person causing the injuries ...

Similar view has been taken in Skandia's case (supra), Sohan Lal Passi's
C case (supra), Kashiram Yadav and Anr. v. Oriental Fire and General Insurance
Co. ltd. and Ors., [ 1989] 4 SCC 128 and several others.

In Kanzla 's case (supra), a Division Bench of this Court summed up the
legal position :

"The' position can be summed up thus :

D
The insurer and the insured are bound by the conditions enumerated
in the policy and the insurer is not liable to the insured if there is
violation of any policy condition. But the insurer who is made
statutorily liable to pay compensation to third parties on account of
the certificate of insurance issued shall be entitled to recover from the
E insured the amount paid to the third parties, if there was any breach
of policy conditions on account of the vehicle being driven without
a valid driving licence. Learned counsel for the insured contended
that it is enough if he establishes that he made all due enquiries and
believed bona fide that the driver employed by him had a valid driving
F licence, in which case there was no breach of the policy condition. As
we have not decided on that contention it is open to the insured to
raise it before the Claims Tribunal. In the present case, ifthe Insurance
Company succeeds in establishing that there was breach of the policy
condition, the Claims Tribunal shall direct the insured to pay that
amount to the insurer. In default the insurer shall be allowed to recover
G that amount (which the insurer is directed to pay to the claimant third
parties) from the insured person."

The submissions made on behalf of the petitioner may now be noticed.

According to the learned counsel, sub-section (4) of Section 149 deals with
H the situation where the insurer in the policy purpm1s to restrict the insurance
 NATIONAL INSURANCE CO.LTD. r.SWARAN SINGH [V.N. KHARE, CJ.] 22 J
of the persons insured thereby by reference to any condition other than those A
in clause (b) of sub-section (2) of Section 149 and in that view of the matter
no liability is covered for driving of a vehicle without licence or fake licence.
The submission ignores the plain and unequivocal expression used in sub-
section (2) of Section 149 as well as the proviso appended thereto. With a
view to construe a statute the scheme of the Act has to be taken into
consideration .. For the said purpose the entire Act has to be read as a whole B
and then chapter by chapter, section by section and word by word. [See
Reserve Bank of India etc. v. Peerless General Finance and Investment Co.
Ltd and Ors., [1987] I SCC 424 Para 33.

Proviso appended to sub-section (4) of Section 149 is referable only to C

sub-section (2) of Section 149 of the Act. It is an independent provision and
must be read in the context of Section 96(4) of the Motor Vehicles Act, 1939.
Furthermore, it is one thing to say that the insurer will be entitled to avoid
its liabiiity owing to breach of terms of a contract of insurance but it is
another thing to say that the vehicle is not insured at all. If the submission
of the learned counsel for the petitioner is accepted, the same would render D
the proviso to sub-section (4) as well as sub-section (5) of Section 149 of the
Act otiose, nor any effective meaning can be attributed to the liability clause
of the insurance company contained in sub-section (I). The decision in Kam/a's
case (supra) has to be read in the aforementioned context.

Sub-section (5) of Section 149 which imposes a liability on the insurer E

must also be given its full effect. The insurance company may not be liable
to satisfy the decree and, therefore, its liability may be zero but it does mean
that it did not have initial liability at all. Thus, if the insurance company is
made liabie to pay any amount, it can recover the entire amount paid to the
third party on behalf of the assured. If this interpretation is not given to the F
.-. beneficent provisions of the Act having regard to its purport and object, we
\ fail to see a situation where beneficent provisions can be given effect to. Sub-
section (7) of Section 149 of the Act, to which pointed attention of the Court
has been drawn by the learned counsel for the petitioner, which is in negative
language may now be noticed. The said provision must be read with sub-
section (I) thereof. The right to avoid liability in terms of sub-section (2) of G
Section 149 is restricted as has been discussed hereinbefore. It is one thing
to say that the insurance companies are entitled to raise a defence but it is
another thing to say that despite the fact that its defence has been accepted
having regard to the facts and circumscances of the case, the Tribunal has
power to direct them to satisfy the decree at the first instance and then direct H
 222 SUPREME COURT REPORTS [200.J) I S.C.R.

A recovery of the same from the owner. These two matters stand apart and
require contextual reading.

WHEN ADMITTEDLY NO LICENCE WAS OBTAINED BY A DRIVER:

We have analysed the relevant provisions of the said Act in terms

B whereof a motor vehicle must be driven by a person having a driving licence.
The owner of a motor vehicle in terms of Section 5 of the Act has a
responsibility to see that no vehicle is driven except by a person who does r
not satisfy the provisions of Section 3 or 4 of the Act. In a case, therefore,
where the driver of the vehicle admittedly did not hold any licence and the
C same was allowed consciously to be driven by the owner of the vehicle by
such person, the insurer is entitled to succeed in its defence and avoid liability.
The matter, however, may be different where a disputed question of fact
arises as to whether the driver had a valid licence or where the owner of the
vehicle committed a breach of the terms of the contract of insurance as also
· the provisions of the Act by consciously allowing any person to drive a
D vehicle who did not have a valid driving licence. In a given case, the driver
of the vehicle may not have any hand at all, e.g. a case where an accident
takes place owing to a mechanical fault or vis-major. [See Jitendra Kumar
(supra)].

In V. Mepherson v. Shiv Charan Singh, (1998) ACJ 601 (Del.)] the

E owner of the vehicle was held not to be guilty of violating the condition of
policy by willfully permitting his son to drive the car who had no driving
licence at the time of accident. In that case, it was held that the owner and
insurer both were jointly and severally liable.

In New India Assurance Co. ltd v. Jagtar Singh and Ors., (1998) ACJ
F 1074, Hon'ble M. Srinivasan, CJ, as His Lordship then was, dealing with the
case where a duly Iicensed driver was driving a vehicle but there was a
dispute as to who was driving the vehicle. In that case the court referred to
the judgment in Kashiram Yadav v. Oriental Fire & General Insurance Cu.
Ltd, ( 1989) ACJ I 078 SC and expressed its agreement with the views taken
G therein.

In Natiuna/ Insurance Co. ltd v. lshroo Devi and Ors., (1999) ACJ
615 where there was no evidence that the society which employed the driver
was having knowledge that the driver was not holding a valid licence, it was
held the insurance company is liable. The court relied upon the decisions of
H this Court in Kashiram Yadav 's case (supra), Skandia 's case (supra) and
 NATIONAL INSURANCE CO.LTD. 1·.SWARAN SINGH [V.N KHARE, Cl] 223
-y
Sohan Lal Passi 's case (supra). A
WHEN THE PERSON HAS BEEN GRANTED LICENCE FOR ONE TYPE
J OF VEHICLE BUT AT THE RELVANT TIME HE WAS DRIVING
ANOTHER TYPE OF VECHILE :

Section 10 of the Act provides for forms and contents of licences to B

drive. The licence has to be granted in the prescribed form. Thus, a licence
to drive a light motor vehicle would entitle the holder thereto drive the
vehicle falling within that class or description.

Section 3 of the Act casts an obligation on a driver to hold an effective

driving licence for the type of vehicle which he intends to drive. Section I0 c
of the Act enables Central Government to prescribe forms of driving licences
for various categories of vehicles mentioned in sub-section (2) of said section.
The various types of vehicles described for which a driver may obtain a
licence for one or more of them are (a) Motorcycle without gear, (b) motorcycle
with gear, (c) invalid carriage, (d) light motor vehicle, (e) transport vehicle,
D
(f) road roller and (g) motor vehicle of other specified description. The
definition clause in Section 2 of the Act defines various categories of vehicles
';tt which are covered in broad types mentioned in sub-section (2) of Section 10.
They are 'goods carriage', 'heavy-goods vehicle', 'heavy passenger motor-
vehicle', 'invalid carriage', 'light motor-vehicle', 'maxi-cab', 'medium goods
vehicle', 'medium passenger motor-vehicle', 'motor-cab', 'motorcycle', E
'omnibus', 'private service vehicle', 'semi-trailer', 'tourist vehicle', 'tractor',
'trailer', and 'transport vehicle'. In claims for compensation for accidents,
various kinds of breaches with regard to the conditions of driving licences
arise for consideration before the Tribunal. A person possessing a driving
licence for 'motorcycle without gear', for which he has no licence. Cases
F
may also arise where a holder of driving licence for 'light motor vehicle' is
.4.
found to be driving a 'maxi-cab', 'motor-cab' or 'omnibus' for which he has
t no licence. In each case on evidence led before the tribunal, a decision has
to be taken whether the fact of the driver possessing licence for one type of
vehicle but found driving another type of vehicle, was the main or contributory
cause of accident. If on facts, it is found that accident was caused solely G
because of some other unforeseen or intervening causes like mechanical
failures and similar other causes having no nexus with driver not possessing
requisite type of licence, the insurer will not be allowed to avoid its liability
merely for technical breach of conditions concerning driving licence.

We have construed and determined the scope of sub-clause (ii) of sub- H

 224 SUPREME COURT REPORTS (2004] I S.CR.

A section (2) of section 149 of the Act. Minor breaches of licence conditions,
such as want of medical fitness certificate, requirement about age of the
driver and the like not found to have been the direct cause of the accident,
would be treated as minor breaches of inconsequential deviation in the matter
of use of vehicles. Such minor and inconsequential deviations with regard to
B licensing conditions would not constitute sufficient ground to deny the benefit
of coveragt~ of insurance to the third parties.

On all pleas of breach of licensing conditior.s taken by the insurer, it

would be open to the tribunal to adjudicate the claim and decide inter se
liability of insurer and insured; although where such adjudication is likely to
C entail undue delay in decision of the claim of the victim, the tribunal in its
discretion may relegate the insurer to seek its remedy of reimbursement from
the insured in the civil court.

WHERE THE DRIVER'S LICENCE IS FOUND TO BE FAKE:

D It may be true as has been contended on behalf of the petitioner that

a fake or forged licence is as good as no licence but the question herein, as
noticed hereinbefore, is whether the insurer must prove that the owner was
guilty of the wilful breach of the conditions of the insurance policy or the
contract of insurance. In lehru 's case (supra), the matter has been considered
at some details. We are in general agreement with the approach of the Bench
E but we intend to point out that the observations made therein must be
understood to have been made in the light of the requirements of law in terms
whereof the insurer is to establish wilful breach on the part of the insured and
not for the purpose of its disentitlement from raising any defence or the
owners be absolved from any liability whatsoever. We would be dealing in
F some details with this aspect of the matter a little later.

LEARNER'S -LICENCE :

Motor Vehicles Act, 1988 provides for grant of learner's licence. [See
Section 4(3), Section 7(2), Section 10(3) and Section 14]. A learner's licence
G is, thus, also a licence within the meaning of the provisions of the said Act.
It cannot, therefore. be said that a vehicle when being driven by a learner
subject to the conditions mentioned in the licence, he would not be a person
who is not duly licensed resulting in conferring a right on the insurer to avoid
the claim of the third party. It cannot be said that a person holding a learner's
licence is not entitled to drive the vehicle. Even if there exists a condition in
H the contract of insurance that the vehicle cannot be driven by a person holding
 NATIONAL INSURANCE CO.LTD. 1·.SWARAN SINGH [V.N. KHARE, CJ.] 225
a learner's licence, the same would run counter to the provisions of Section A
149(2) of the said Act.

The provisions contained in the said Act provide also for grant of
driving licence which is otherwise a learner's licence. Section 3(2) and 6 of
the Act provides for the restriction in the matter of grant of driving licence,
Section 7 deals with such restrictions on granting of learner's licence. Section B
8 and 9 provide for the manner and conditions for grant of driving licence.
Section 15 provides for renewal of driving licence. Learner's licences are
l
granted under the rules framed by the Central Government or the State
Governments in exercise of their rule making power. Conditions are attached
to the learner's licences granted in terms of the statute. A person holding
learner's licence would, thus, also come within the purview of"duly licensed"
c
as such a licence is also granted in terms of the provisions of the Act and the
r4les framed thereunder. It is now a well-settled principle of law that rules
~al idly framed become part of the statute. Such rules are, therefore, required
to be read as a pa1t of main enactment. It is also well-settled principle of law
that for the interpretation of statute an attempt must be made to give effect D
to all provisions under the rule. No provision should be considered as
surplusage.
v
Mandar Madhav Tambe 's case (supra), whereupon the learned counsel
placed reliance, has no application to the fact of the matter. There existed an
exclusion clause in the insurance policy wherein it was made clear that the E
Insurance Company, in the event of an accident, would be liable only if the

- vehicle was being driven by a person holding a valid driving licence or a

permanent driving licence "other than a learner's licence". The question as
to whether such a clause would be valid or not did not arise for consideration
before the Bench in the said case. The said decision was rendered in the F
peculiar fact situation obtaining therein. Therein it was stated that "a driving
..[
licence" as defined in the Act is different from a learner's licence issued
under Rule 16 of the Motor Vehicles Rules, 1939 having regard to the factual
matrix involved therein.

The question which arises for consideration in these petitions did not G
arise there. Neither the same were argued at the Bar nor the binding precedents
were considered. Mandar Madhav Tambe 's case (supra), therefore, has no
application to the facts of these cases nor create any binding precedent. The
view we. have taken is in tune with the judgments rendered by different High
Courts consistently. [See for example New India Assurance Co. ltd. v. la1hfl H
 226 SUPREME COURT REPORTS [2004] I S.C.R.

A Jayaraj and Ors., (1991) ACJ 298.

CONFLICT OF DECISIONS :

Contention of Mr. Salve that there exists a conflict in the decisions of

this Court in Nicollet/a Rohtagi (supra) on the one hand and Ka11ila (supra)
B and lehru (supra) on the other cannot be accepted. We do not find in the said
decisions any such conflict.

Nicollet/a Rohtagi (supra) was a case where a question arose as to

whether an appeal by the insurer on the ground de 'hors those contained in
Section 149(2) would be maintainable. It was held not to be. There cannot
C be any doubt or dispute that defences enumerated in Section 149(2) would
be available to the insurance companies, but that does not and cannot mean
that despite such defences having not been established, they wou Id not be
liable to fulfil their statutory obligation under sub-section (I) of Section 149
of the Act.
D So far as the purported conflict in the judgments of Kam/a (supra) and
lehru (supra) is concerned, we may wish to point out that the defence to the
effect that the: licence held by the person driving the vehicle was a fake one,
would be available to the insurance companies, but whether despite the same,
the plea of default on the part of the owner has been established or not would
E be a question which will have to be determined in each case.

The court, however, in lehru (supra) must not read that an owner of
a vehicle can under no circumstances has any duty to make any enquiry in
this respect. The same, however, would again be a question which would
arise for consideration in each individual case.
-
F
The submission of Mr. Salve that in lehn1 's case (supra), this Court
has, for all intent and purport, taken away the right of insurer to raise a
defence that the licence is fake does not appear to be correct. Such defence
can certainly be raised but it will be for the insurer to prove that the insured
did not take adequate care and caution to verify the genuineness or otherwise
G of the licence held by the driver.
Our attention has also been drawn on an unreported order of this Court
in Malla Prakasarao v. Malla Janaki and Ors., (Civil Appeal No. 163 of
1996 disposed of on 6th August, 2002) which reads as under :
H "It is not disputed that the driving licence of the driver of the vehicle
 NATIONAL INSURANCE CO. LTD. v.SWARAN SINGH [V.N. KHARE. CJ] 227
had expired on 20th November, 1982 and the driver did not apply for A.
renewal within 30 days of the expiry of the said licence, as required
under Section l l of the Motor Vehicles Act, 1939. It is also not
disputed that the driver of the vehicle did not have driving licence
when the accident took ·place. According to the terms of contract, the
Insurance Company has no liability to pay any compensation where B
an accident takes place by a vehicle driven by a driver without driving
licence. In that view of the matter, we do not find any merit in the
appeal.

The appeal fails and is, accordingly dismissed. There shall be no order
as to costs".
c
In that case, the Court presumably as in the case of Mandar Madhav
Tambe 's case (supra), was concerned with the terms and conditions of the
contract of insurance. Before the Court, no occasion arose to consider the
general terms and condition of the contract of insurance vis-a-vis liability of
insurance under the Motor Vehicles Act. D
CONCLUSION:

It is, therefore, evident from the discussions made hereinbefore that the
liability of the insurance company to satisfy the decree at the first instance
and to recover the awarded amount from the owner or driver thereof has been E
holding the field for a long time.

Apart from the reasons stated hereinbefore the doctrine of stare decisis
persuades us not to deviate from the said principle.

It is well-settled rule of law and should not ordinarily be deviated from. F

(See The Bengal Immunity Company limited v. The State of Bihar and Ors.,
[1955] 2 SCR 603 at 630-632, Keshav Mills Co. Ltd v. Commissioner of
Income-Tax, Bombay North., [ 1965] 2 SCR 908 at 921-922, Union of India
and Anr. v. Raghubir Singh (Dead) By lRs. etc., [ 1989] 3 SCR 316 at 323,
327, 334, Mis. Gannon Dunke1;/ey and Co. and Ors. v. State of Rajasthan
and Ors., [1993] I SCC 364, Belgaum Gardeners Cooperative Production G
Supply and Sale Society ltd v. State of Karanataka, [1993] Supp 1 SCC 96
and Hanuma/1/appa Krishnappa Mantur and Ors. v. State of Karna/aka,
[1992] supp. 2 sec 213.

We may, however, hasten to add that the Tribunal and the court must, H
 228 SUPREME COURT REPORTS [2004] I S.C.R.

A 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-
B 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, as the
case may be, in execution of the same award having regard to the provisions
of Sections 165 and 168 of the Act . However, in the event, having regard
to the limited scope of inquiry in the proceedings before the Tribunal it had
not been able to do so, the insurance company may initiate a separate action
C therefor against the owner or the driver of the vehicle or both, as the case
may be. Those exceptional cases may arise when the evidence becomes
available to or comes to the notice of the insurer at a subsequent stage or for
one reason or the other, the insurer was not given opportunity to defend at
·all. Such a course of action may also be resorted when a fraud or collusion
bttween the victim and the owner of the vehicle is detected or comes to the
D knowledge of the insurer at a later stage.

Although, as noticed hereinbefore, there are certain special leave petitions

wherein the persons having the vehicles at the frne when the accidents took
place did not hold any licence at all, in the facts and circumstances of the
E case, we do not intend to set aside the said awards. Such awards may also
be satisfied by the petitioners herein subject to their right to recover the same
from the ownas of the vehicles in the manner laid down therein. But this
order may not be considered as a precedent.

Although in most of the case, we have not issued notices in view of the
..
f fact that the question of law has to be determined; we have heard coun.sel for
the paiiies at length at this stage.

SUMMARY OF FINDINGS :

The summary of our findings to the various issues as raised in these

G petitions are as follows:

(i) Chapter XI of the Motor Vehicles Act, 1988 providing compulsory

insurance of vehicles against third party risks is a social welfare
legislation to extend relief by compensation to victims of accidents
caused by use of motor vehicles. The provisions of compulsory
H insurance coverage of all vehicles are with this paramount object
 NATIONAL INSURANCE CO. LTD. 1·.SWARAN SINGH (V.N. KHARE, Cl] 229
and the provisions of the Act have to be so interpreted as to A
effectuate the said object.
(ii) Insurer is entitled to raise a defence in a claim petition filed
under Section 163 A or Section 166 of the Motor Vehicles Act,
1988 inter alia in terms of Section 149(2)(a)(ii) of the said Act.
(iii) The breach of policy condition e.g., disqualification of drive~ or B
invalid driving licence of the driver, as contained in sub-section
(2)(a)(ii) of section 149, have to be proved to have been
committed by the insured for avoiding liability by the insurer.
Mere absence, fake or invalid driving licence or disqualification
of the driver for driving at the relevant time, are not in themselves C
defences available to the insurer against either the insured or the
third parties. To avoid its liability towards insured, the insurer
has to prove that the insured was guilty of negligence and failed
to exercise reasonable care in the matter of fulfilling the condition
of the policy regarding use of vehicles by duly licensed driver or
one who was not disqualified to drive at the relevant time. D

- (iv) The insurance companies are, however, with a view to avoid

their liability must not only establish the available defence(s)
raised in the said proceedings but must also establish 'breach' on
the part of the owner of the vehicle; the burden ofproofwherefor
would be on them. E
(v) The coun cannot lay down any criteria as to how said burden
would be discharged, inasmuch as the same would depend upon
the facts and circumstance of each case.
(vi) Even where the insurer is able to prove breach on the part of the
insured concerning the policy condition regarding holding of a
F
valid licence by the driver or his qualification to drive during the
relevant period, the insurer would not be allowed to avoid its
liability towards insured unless the said breach or breaches on
the condition of driving licence is/ are so fundamental as are
found to have contributed to the cause of the accident. The G
Tribunals in interpreting the policy conditions would apply ''the
rule of main purpose" and the concept of "fundamental breach"
to allow defences available to the insured under section 149(2)
of the Act.
(vii) The question as to whether the owner has taken reasonable care ·H
 230 SUPREME COURT REPORTS [2004] I S.C.R.

A to find out as to whether the driving licence produced by the

driver, (a fake one or otherwise), does not fulfil the requirements
of law or not wi II have to be determined in each case.
(viii) If a vehicle at the time of accident was driven by a person having
a learner's licence, the insurance companies would be liable to
B satisfy the decree.
(ix) The claims tribunal constituted under Section 165 read with
Section 168 is empowered to adjudicate all claims in respect of r
the accidents involving death or of bodily injury or damage to
property of third party arising in use of motor vehicle. The said
c power of the tribunal is not restricted to decide the claims inter
se between claimant or claimants on one side and insured, insurer
and driver on the other. In the course of adjudicating the claim
for compensation and to decide the availability of defence or
~-
defences to the insurer, the Tribunal has necessarily the power
and jurisdiction to decide disputes inter se between insurer and
D the insured. The decision rendered on the claims and disputes
inter se between the insurer and insured in the course of
;
adjudication of claim for compensation by the claimants and the
award made thereon is enforceable and executable in the same 'i
manner as provided in Section 174 of the Act for enforcement
E and execution of the award in favour of the claimants.
(x) Where on adjudication of the claim under the Act the tribunal
arrives at a conclusion that the insurer has satisfactorily proved
its defence in accordance with the provisions of section 149(2)
read with sub-section (7), as interpreted by this Court above, the
p
l'
Tribunal can direct that the insurer is liable to be reimbursed by
the insured for the compensation and other amounts which it has
been compelled to pay to the third party under the award of the
,...
tribunal. Such determination of claim by the Tribunal will be '·
enforceable and the money found due to the insurer from the
insured will be recoverable on a certificate issued by the tribunal
G to the Collector in the same manner under Section 174 of the Act
as arrears of land revenue. The certificate will be issued for the
recovery as arrears of land revenue only if, as required by sub-
section (3) of Section 168 of the Act the insured fails to deposit
the amount awarded in favour of the insurer within thirty days
from the date of announcement of the award by the tribunal.
H
 NATIONAL INSURANCE CO. LTD. 1·.SWARAN SlNGH [V.N. KHARE, CJ.] 23 J
(xi) The provisions contained in sub-section (4) with proviso A
thereunder and sub-section (5) which are intended to cover
specified contingencies mentioned therein to enable the insurer
to recover amount paid under the contract of insurance on behalf
of the insured can be taken recourse of by the Tribunal and be
extended to claims and defences of insurer against insured by B
relegating them to the remedy before regular court in cases where
on given facts and circumstances adjudication of their claims
inter se might delay the adjudication of the claims of the victims.

For the reasons aforementioned, these petitions are dismissed but

without any order as to costs.
c
S.K.S. Petitions dismissed.