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Thursday, October 29, 2015

insurer cannot escape the liability, when ownership changes due to the hypothecation agreement. In the case of hire also, it cannot escape the liability, even if the ownership changes. Even though, KSRTC is treated as owner under Section 2(30) of the Act of 1988, the registered owner continues to remain liable as per terms and conditions of lease agreement lawfully entered into with KSRTC.= In view of the aforesaid discussion, we hold that registered owner, insurer as well as KSRTC would be liable to make the payment of compensation jointly and severally to the claimants and the KSRTC in terms of the lease agreement entered into with the registered owner would be entitled to recover the amount paid to the claimants from the owner as stipulated in the agreement or from the insurer.





Managing Director, K.S.R.T.C.                            ... Appellant


New India Assurance Co.Ltd. & Anr.                         ... Respondents


Civil Appeal No.6641 of 2010

MD Karnataka Road Transport Corpn. & Anr.          … Appellants


Thippamma & Ors.                             … Respondents



1.    The questions involved in the appeals are  whether   in  the  wake  of
lease agreement entered into by registered owner with Karnataka  State  Road
Transport  Corporation  (hereinafter  referred  to  as  the  ‘KSRTC’),   the
registered owner and insurer along with  KSRTC  can  be  fastened  with  the
liability to make payment to the claimants and  whether  KSRTC  can  recover
the  amount  from   registered   owner   and   its   entitlement   to   seek
indemnification from insurer?

2.    The facts giving rise to Civil Appeal No.5293  of  2010  reflect  that
the accident in question was caused by the bus which was  driven  under  the
control of KSRTC.  The bus was owned  by  respondent  no.2,  T.M.  Ganeshan,
insured by the New India Assurance Co. Ltd.  Admittedly, an agreement  dated
28.2.2002 was entered into between the  KSRTC  and  owner  respondent  no.2.
The  MACT,  Tumkur,  Karnataka  on  25.6.2007  allowed  the  claim  petition
preferred by the claimants and awarded a sum of Rs.4,09,000/- with  interest
@ 6% p.a.

3.    In view of the agreement between KSRTC and the owner of the  bus,  the
liability was fastened upon  the  owner  and  the  insurer  of  the  vehicle
jointly and severally to make the payment of  compensation,  not  on  KSRTC.
Aggrieved thereby, the insurer preferred an appeal before the High Court  of
 Karnataka.  The same has been allowed by the impugned  judgment  and  order
dated 20.2.2009.  The High  Court  has  allowed  the  appeal  filed  by  the
insurer and held that the liability to make the payment of compensation   is
that of KSRTC alone.  Aggrieved thereby,  the  KSRTC  has  come  up  in  the
appeal before us.

4.    In Civil Appeal No.6641 of 2010, the bus was plied similarly  on  hire
agreement by the KSRTC.  The Claims  Tribunal  has  fastened  the  liability
jointly and severally upon  the  KSRTC  and  upon  Internal  Security  Fund,
Bangalore.  Aggrieved thereby, the appeal was preferred in the  High   Court
and the same has been dismissed.  Hence, Civil  Appeal No.6641 of  2010  has
been filed  in this Court.

5.    It was submitted by Shri S.N. Bhat, learned counsel for the  appellant
that the High Court has erred in fastening the liability   upon  the  KSRTC.
In view of the lease agreement for hire entered into between the  KSRTC  and
the owner, the owner could not escape the liability to make the  payment  of
compensation.  As such, the insurer was liable to indemnify  the  owner  and
to make the payment of compensation.  The  liability  could  not  have  been
fastened upon the  KSRTC.   Learned  counsel  has  placed  reliance  on  the
decision of this Court in Uttar Pradesh State Road Transport Corporation  v.
Kulsum & Ors., (2011) 8 SCC 142.

6.    Shri Vishnu Mehra, learned counsel appearing on behalf  of  New  India
Assurance Co. Ltd. contended that in view of the fact that the  vehicle  was
plied under the complete control and supervision of KSRTC, it cannot  escape
from the liability to make the payment of compensation.  He has relied  upon
the decision of this Court in Rajasthan State Road Transport Corporation  v.
Kailash Nath Kothari & Ors., (1997) 7 SCC 481  and  the  definition  of  the
owner under Section 2(30) of  the  Motor  Vehicles  Act,  1988  (hereinafter
referred to as the ‘Act’).  He has consequently  submitted  that  owner  and
insurer have rightly been exonerated by the High Court.

7.    It was submitted on behalf of the claimants that they can recover  the
compensation from the KSRTC, owner and insurer jointly and severally.

8.    The owner has been defined under Section 2(30) of the  Motor  Vehicles
Act, 1988 (hereinafter referred to as the Act of 1988).  The  definition  in
the Act of 1988 is extracted hereunder :

“2(30)  “owner” means  a  person  in  whose  name  a  motor  vehicle  stands
registered, and where such person is a minor, the guardian  of  such  minor,
and in relation to a motor vehicle which is the subject of  a  hire-purchase
agreement, or an agreement of lease or an agreement  of  hypothecation,  the
person in possession of the vehicle under that agreement;”

9.    The definition of owner under Section 2(19)  of   the  Motor  Vehicles
Act, 1939 read as under:-

“2(19) "owner" means, where the person, in possession of a motor vehicle  is
a minor, the guardian of such minor, and in  relation  to  a  motor  vehicle
which is the subject of a hire purchase agreement, the person in  possession
of the vehicle under that agreement.”

10.   Under the Act of 1988, the owner means a registered  owner  and  where
the agreement on hire-purchase or an agreement of   hypothecation  has  been
entered into or lease agreement, the person in possession of the vehicle  is
treated as an owner.

11.   Section 146 of the Act of 1988 prescribe the necessity  for  insurance
against third party risk.  Motor vehicle cannot be used in  a  public  place
without policy of insurance complying with the requirement  of  Chapter  X1.
Exemption has been carved out to the vehicles owned by the Central or  State
Governments and used for government  purposes.   Under  sub-Section  (3)  of
Section 146, it is open to the appropriate Government to exempt the  vehicle
owned by the Central or State Governments  if  it  is  used  for  Government
purposes or any local authority or any State transport undertaking.

12.   Section 147 of the Act of 1988 deals with the requirements  of  policy
and limits of liability.  The statutory requirement  under  Section  147  is
that policy of insurance must be a policy  which  is  issued  by  authorised
Insurer and insures the person or class of persons specified in  the  policy
to the extent specified in sub-section (2)(i) against  any  liability  which
may be incurred by him in respect of the death of or bodily  injury  to  any
person, including owner of  the  goods  or  his  authorised   representative
carried in the vehicle or damage to any property of a third party caused  by
or arising out of the use of  the  vehicle  in  a  public  place;  and  (ii)
against the death of or bodily injury to any passenger of a  public  service
vehicle caused by or arising out of the use  of  the  vehicle  in  a  public

13.   Certain exception have been carved out in the proviso  to  sub-section
(1) of section 147.  It is contained in proviso (ii) that the  policy  shall
not  be  required  to  cover  any  contractual  liability.   Limits  of  the
liability have  been  provided  in  Section  147(2).   The  liability  under
Section 147(2)(1)(b)  is the amount of liability incurred and  with  respect
to any damage to any property of a  third  party,  a  limit  of  Rs.6,000/-.
Section 147(5) provides that notwithstanding anything contained in  any  law
for the time being in force, an insurer shall be liable  to  indemnify   the
person or classes of persons specified in  the  policy  in  respect  of  any
liability which the policy purports to cover in the case of that  person  or
those classes of persons.

14.   Section 157 of  the  Act  1988  deals  with  the  deemed  transfer  of
certificate of insurance.  Provisions of Section 157  are as under:

“157. Transfer of certificate of insurance.—

(1) Where a person in whose favour the certificate  of  insurance  has  been
issued in accordance with  the  provisions  of  this  Chapter  transfers  to
another person the ownership of the motor vehicle in respect of  which  such
insurance was taken together with the policy of insurance relating  thereto,
the certificate of insurance and the policy  described  in  the  certificate
shall be deemed to have been transferred in favour of  the  person  to  whom
the motor vehicle is transferred with effect from the date of its  transfer.

(2) The transferee shall  apply  within  fourteen  days  from  the  date  of
transfer in the prescribed form to the insurer for making necessary  changes
in regard to the fact of transfer in the certificate of  insurance  and  the
policy described in the certificate in his  favour  and  the  insurer  shall
make the necessary changes in the certificate and the  policy  of  insurance
in regard to the transfer of insurance.”

It is apparent from Section 157(1) of the  Act  of  1988   that  certificate
shall be deemed to have been transferred in favour of  the  person  to  whom
the motor vehicle is transferred with effect from the date of its  transfer.
 Section 157(2) of the Act provides that the transferee to apply  within  14
days from the date of transfer in the  prescribed  form  to  make  necessary
changes in the certificate of insurance.

15.   Before dilating further, we deem  it  appropriate  to  advert  to  the
certain clauses in the lease agreement on the basis of  which  vehicles  are
plied on hire by the KSRTC.  The owner of the private  bus  has  to  provide
new bus to KSRTC for the purpose of hire.

16.   As per clause 6, the owner of the private bus to  discharge  statutory
liability.  Clauses 6(i) and (ii) of lease agreement are quoted below:

“6(i)  In case the owner of the private bus defaults  in  the  discharge  of
any of his statutory liability, KSRTC reserves  the  right  to  deduct  such
amounts from the amount  payable  to  the  owner  as  it  is  sufficient  to
discharge the liability, and if the  liability  is  more  than  the  amounts
payable by KSRTC to the owner, the owner alone shall be liable to  discharge
the liability and/or to make good the amount  to  KSRTC,  if  discharged  by

6(ii)    If  because  of  any  default  by  the  bus  owner  or  by  his/her
drivers/other  employees,  agent  representative,  any  liability  comes  on
KSRTC, the KSRTC has the right to recover the amount either from  the  bills
payable or the security deposit and to take further  steps  to  recover  the
balance from the private owner by any lawful means.”

17.   The Conductor was to be provided under clause 7(iv) by the  KSRTC  and
was entitled to collect the fare and luggage charges etc. for and on  behalf

18.   As per clause 8, Drivers were  to  be  engaged  and  provided  by  the
owner.  Salary etc. was also to be paid by  the  owner  and  is  subject  to
other  conditions such as they should  not  have  been  dismissed  from  the
services of  the  Central  Government  etc.  and  should  possess  requisite

19.   Clause 14 of lease agreement with respect  to  insurance  coverage  is
also relevant which is extracted as under:

“14. The owner of the private bus shall keep  the  hired  bus  duly  insured
under a Motor Vehicle comprehensive insurance police covering all risks  and
all such costs shall be born by the owner of the private bus.   In  case  of
failure to have a valid comprehensive insurance policy.  The  bus  will  not
be used for KSRTC’s operations and it will be deemed that the  bus  has  not
been made available to KSRTC for scheduled operations, with  all  consequent
of effects.  The insurance shall cover 61passengers.”

20.   Clause 16 relating to liability as to accidents is also important  for
the purpose of decision  of  the  case.   Clauses  16(a)  (b)  and  (c)  are
extracted as under:-

“(a) The owner of the bus  alone  shall  be  solely  liable  for  any  claim
arising out of any accident, damages or  loss  or  hurt  caused  during  the
operation of the bus.  The KSRTC shall not be liable for any claims  arising
out of the use of the buses, including claims made in  connection  with  the
impurities or loss of life sustained by passengers, bus crew  or  any  other
road user or to any property/person.  Besides,  all  tortuous  liability  if
any, shall be borne by the owner or the insurer of the  vehicle  themselves.
However the accidents should be reported to the KSRTC office/Depot.

(b) KSRTC may make payment of ex-gratia amount to the victims  in  event  of
accident of such private hired buses while on KSRTC operations  as  per  the
KSRTC’s prevailing norms which shall be recovered from any  amounts  due  to
the owner of such private buses or from security Deposit etc.  Further,  the
owner  of  such  private  bus  should  make  prompt  payment  of  ‘no  fault
liability’ or any other claim under the law for such accident  victims.   In
case KSRTC is compelled to make such payment  on  behalf  of  the  owner  of
private buses, it shall be recovered from any amount due  to  the  owner  by
KSRTC or receivable to him from Insurance Company or other debtors etc.   In
case of non-payment to non-recovery of such amount by KSRTC within 15  days,
interest at 15% per annum shall also be recoverable.  For delays beyond   30
days KSRTC may amount or adjustment thereof towards hire charges payable.

(c) It shall be the responsibility of the  owner  of   the  private  bus  to
produce at his own cost, the driver/bus before the court of ………  and  before
the police authorities whenever required in case of accident  or  any  other
contingencies or on order  or  directions  by   the  Judicial  Or  Executive
authorities …….   charges shall be payable by KSRTC in such cases.”

It is apparent from clause 16(a) that in case of accident claim,  the  KSRTC
shall not be liable for any claim arising out  of  use  of  buses  including
loss  of  life  sustained  by  passengers  or  any  other  user  or  to  any
property/person.  If KSRTC makes any  ex  gratia  payment  in  the  case  of
accident, the same shall be recovered from any amount due to  the  owner  in
case KSRTC is made liable to make  payment  of  compensation  on  behalf  of
private buses it shall be recovered from any amount  due  to  the  owner  by
KSRTC or receivable to him from Insurance Company  etc.

21.   Clauses 17, 18, 19 and 20 are also relevant they are extracted below:

“17.  The KSRTC shall not be liable for any loss caused to the buses  hired,
at any point of time including during the  period  of  agitations,  strikes,
accidents, natural calamities etc.

18. The owner of the private bus shall be liable for shall  alone  discharge
or meet all claims including fines and penalties arising  out  of  violation
of traffic Rules, and Regulations, Statutes,  Acts,  Rules  and  Regulations
etc., in force for act of  omissions  or  commissions  committed  either  by
his/her drivers or by any other person not authorised to drive.   The  owner
of the private bus shall be liable and shall meet and  discharge  any  claim
for compensation or damages on account of tortuous liability.

19(a) The owner  of  the  private  bus  shall  provide  and  make  available
bus/buses as per the contract to KSRTC on all days or operation in  time  as
per the schedule departing time and also  as  so  as  to  cover  the  entire
schedule Kms. Duty.

(b) The owner of the private  bus  shall  not  withdraw  any  bus  from  the
operation except with advance notice before 24 hours and with prior  written
consent of the depot manager concerned of KSRTC  to  do  so.   In  case  any
violation of this clause, the  owner  shall  be  liable  for  imposition  of
penalties by the KSRTC.

20(1)(a) The KSRTC on its part agrees to pay hire charges to  the  owner  at
the rates inculcation in the hiring rate  charts  at  Annexure  A1  and  A2,
subject to the rules, terms and conditions  of  the  contract.   The  hiring
rate applicable shall be based on the schedule Kms. of  the  route  allotted
to the hired bus, except as otherwise provided herein.”

22.   The main question for consideration is whether  the  registered  owner
and insurer can escape the liability in view of the provisions contained  in
the Act and in view of the aforesaid  terms  and  conditions  of  the  lease
agreement.  The question also arise whether claimants can also  recover  the
amount from KSRTC.

23.   The High Court has held that actual control of the bus  was  with  the
KSRTC and the driver was driving the bus under its  control.   Relying  upon
the decisions in National Insurance Co. Ltd. V. Deepa Devi & Ors., (2008)  1
SCC 414 and Rajasthan State  Road  Transport  Corporation  v.  Kailash  Nath
Kothari & Ors., (1997) 7 SCC 481, it was held that KSRTC  to  be  the  owner
under Section 2(30) of the Act.  There is no  liability  of  the  registered
owner as such  insurer  cannot  be  saddled  with  liability  to  indemnify.
Hence, the registered owner and  the  insurer  have  been  exonerated.   The
KSRTC has been fastened with the liability.

In our opinion, decision of High Court is not sustainable.   The  provisions
contained in the Act are clear.  No vehicle can be driven without  insurance
as provided in Section 147 whereas clause  14  of  lease  agreement  between
KSRTC and the owner clearly stipulate that it shall be the liability of  the
owner to  provide  the  comprehensive  insurance  covers  for  all  kind  of
accidental risks to the passengers, other persons/property.  The  provisions
of said clause of  the  agreement  are  not  shown  to  be  opposed  to  any
provision in the Contract Act or any of the provisions contained  under  the
Act of 1988.  Hiring of public service vehicles is not prohibited under  any
of the provisions of the aforesaid  laws.   It  could  not  be  said  to  be
inconsistent user by KSRTC. The agreement is not shown to be illegal in  any
manner whatsoever nor shown to be opposed to the public policy.

24.   The policy of insurance is contractual obligation between the  insured
and the insurer.  It has  not  been  shown  that  while  entering  into  the
aforesaid agreement of lease for hiring the buses,  any  of  the  provisions
contained in the insurance policy has been violated. It has not  been  shown
that owner could not have given bus on hire as per any provision of  policy.
 It was the liability of the registered owner to provide the bus  regularly,
to employ a driver, to make the payment of salary  to  the  driver  and  the
driver should be duly licenced and  not  disqualified  as  provided  in  the
agreement though buses were to be plied  on the routes as specified  by  the
KSRTC and hiring charges were required to be paid to the  registered  owner.
In the absence of any stipulation prohibiting such  an  arrangement  in  the
insurance policy, we find that in view of agreement of lease the  registered
owner has owned the liability to pay. The insurer  cannot  also  escape  the

25.   Apart from that what is provided under Section 157 of the Act of  1988
is that the certificate  of  insurance  and  the  policy  described  in  the
certificate shall be deemed to  have  been  transferred  in  favour  of  the
person  to whom the motor vehicle is transferred with effect from  the  date
of its transfer.  Even if there is a transfer of the vehicle  by  sale,  the
insurer cannot escape  the liability  as there is  deemed  transfer  of  the
certificate of insurance.  In the instant case it is not  complete  transfer
of the vehicle it has been given on hire for which there is  no  prohibition
and no condition/policy of insurance as shown to prohibit plying of  vehicle
on hire. The vehicle was not used for inconsistent  purpose.  Thus,  in  the
absence of any legal prohibition and any violation of terms  and  conditions
of the policy, more so, in view of the provisions of Section 157 of the  Act
of 1988, we are of considered opinion that the  insurer  cannot  escape  the

26.   Now, we come to the question of  exclusion  of  contractual  liability
under second proviso to Section 147(1).  When we read provisions of  Section
147 with Section 157 together, it leaves no room for any  doubt  that  there
is deemed transfer of  policy  in  case  of  transfer  of  vehicle.   Hence,
liability of insurer continues notwithstanding the contract of  transfer  of
vehicle, such contractual liability cannot be said to be excluded by  virtue
of second proviso  to  Section  147(1)  of  Act  of  1988.  Higher  purchase
agreement, an agreement for lease or  an  agreement  for  hypothecation  are
covered under Section 2(30) of the Act of 1988.  A person in  possession  is
considered to be an owner of the vehicle under such agreements.     In  case
such contractual liability is excluded then anomalous  results  would  occur
and financer under higher purchase agreement would be  held  liable  and  so
on.  In our view, an agreement for lease  on  hire  cannot  be  said  to  be
contract envisaged for  exclusion  under  contractual  liability  in  second
proviso to Section 147(1) of the Act of 1988. The High Court  has  erred  in
holding otherwise.
27.   The KSRTC can also be treated as owner for  the  purposes  of  Section
2(30) of the Act of 1988  plying  the  buses  under  lease  agreement.   The
insurance  company  admittedly  has  insured  the  vehicle  and  taken   the
requisite premium and  it  is  not  a  case  set  up  by  the  insurer  that
intimation was not given to the insurance company of the hiring  arrangement
.  Even if the intimation had not been given, in our  opinion,  the  insurer
cannot escape the liability  to indemnify  as  in  the  case  of  hiring  of
vehicle intimation is not required to be given.  It is only in the  case  of
complete transfer of the vehicle when  change  of  registration  particulars
are required under Section 157 of the Act, an intimation has to be given  by
the  transferee  for  effecting  necessary  changes  in  the  policy.   Even
otherwise, that would be a ministerial act and  the  insurer  cannot  escape
the liability for that reason.  When the KSRTC has become the owner  of  the
vehicle during the period it was on hire with it for the purpose of  Section
2(30) of the Act by  virtue of provisions contained in Section  157  of  the
Act, the insurance policy shall be  deemed  to  be  transferred.   As  such,
insurer is liable to make indemnification and cannot  escape  the  liability
so incurred by the KSRTC.

28.   In RSRTC v. Kailash Nath Kothari (supra),  question  of  liability  of
insurance company did not come up for consideration.  The vehicle was  taken
by RSRTC from its owner Sanjay Kumar and it was being plied on the route  by
RSRTC.  The case arose out of accident  date  17.7.1981  under  the  Act  of
1939.  The definition of second owner under section 2(19)  of  Act  of  1939
came up for consideration before this Court, and conditions 4 to  7  and  15
of agreement between RSRTC and the owner, this Court held  that  vehicle  in
question  was in possession and actual control of  RSRTC as such  it  cannot
escape from liability.  Relevant portion of decision is extracted below:-

“15. Conditions 4 to 7 and 15  of  the  agreement  executed     between  the
RSRTC and the owner read:

“4. The Corporation shall appoint the conductor for  the  operation  of  the
bus given on  contract  by  the  second  party  and  the  conductor  of  the
Corporation shall do the work of  issuing  tickets  to  the  passengers,  to
receive the fare, to let all the passengers get in and get out of  the  bus,
to help the passengers to load and unload their goods, to stop  the  bus  at
the stops fixed by the Corporation and to operate the bus according to time-
5. The tickets, waybills and other  stationery  shall  be  supplied  by  the
Corporation to the said conductor of the Corporation.
6. The driver of the bus shall have to follow all such instructions  of  the
conductor, which shall be necessary under the rules  for  the  operation  of
the bus.
7. The  driver  of  the  bus  shall  comply  with  all  the  orders  of  the
Corporation or of the officers appointed by the Corporation.
15. Upon the accident of the bus taking place the owner of the bus shall  be
liable for the loss, damages and for the liabilities relating to the  safety
of the passengers. The Corporation shall not be liable for any accident.  If
the Corporation is required to  make  any  payment  or  incur  any  expenses
through some court or under some mutual compromise,  the  Corporation  shall
be able to recover such amounts from the owner of the  bus  after  deducting
the same from the amounts payable to him.”

16. The admitted facts unmistakably show that the vehicle  in  question  was
in possession and under the actual control  of  RSRTC  for  the  purpose  of
running on the specified route and was being used  for  carrying,  on  hire,
passengers by the RSRTC. The driver was to carry  out  instructions,  orders
and directions of  the  conductor  and  other  officers  of  the  RSRTC  for
operation of the bus on the route specified by the RSRTC.

17. The  definition  of  owner  under  Section  2(19)  of  the  Act  is  not
exhaustive. It has, therefore to be construed, in  a  wider  sense,  in  the
facts and circumstances of a given case. The expression owner must  include,
in a given case, the person who has the actual  possession  and  control  of
the vehicle and under whose directions and commands the  driver  is  obliged
to operate the bus. To confine the meaning  of  “owner”  to  the  registered
owner only would in a case where the vehicle is  in  the  actual  possession
and control of the hirer not be proper  for  the  purpose  of  fastening  of
liability in case of an accident. The liability of the “owner” is  vicarious
for the tort committed by its employee during the course of  his  employment
and it would be a question of fact in each case as to on whom can  vicarious
liability be fastened in the case of an accident. In this case, Shri  Sanjay
Kumar, the owner of the bus could not ply the bus on  the  particular  route
for which he had no permit and he in fact was not plying  the  bus  on  that
route. The services of the  driver  were  transferred  along  with  complete
“control” to RSRTC, under whose directions,  instructions  and  command  the
driver was to ply or not to ply the ill-fated bus on the  fateful  day.  The
passengers were being carried by RSRTC on receiving  fare  from  them.  Shri
Sanjay Kumar was therefore not concerned with the passengers  travelling  in
that bus on the particular route on payment of fare to RSRTC. Driver of  the
bus, even though an  employee  of  the  owner,  was  at  the  relevant  time
performing his duties under the order and command of the conductor of  RSRTC
for operation of the bus. So far as the passengers of the ill-fated bus  are
concerned, their privity of contract was only with the RSRTC  to  whom  they
had paid the fare for travelling in that  bus  and  their  safety  therefore
became the responsibility of the RSRTC while travelling  in  the  bus.  They
had no privity of contract with Shri Sanjay Kumar, the owner of the  bus  at
all. Had it been a case only of transfer of services of the driver  and  not
of transfer of control of the driver from the owner  to  RSRTC,  the  matter
may have been somewhat different. But on facts in this case and in  view  of
Conditions 4 to 7 of the agreement (supra), the RSRTC must  be  held  to  be
vicariously liable for the tort committed by the  driver  while  plying  the
bus under contract of the RSRTC. The general  proposition  of  law  and  the
presumption arising therefrom that an employer, that is the person  who  has
the  right  to  hire  and  fire  the  employee,  is  generally   responsible
vicariously for the tort committed by  the  employee  concerned  during  the
course of his employment and  within  the  scope  of  his  authority,  is  a
rebuttable presumption. If the original employer is able to  establish  that
when the  servant  was  lent,  the  effective  control  over  him  was  also
transferred to the hirer, the original owner can  avoid  his  liability  and
the temporary employer or the hirer, as  the  case  may  be,  must  be  held
vicariously liable for the tort committed by the employee concerned  in  the
course of his employment while under the command and control  of  the  hirer
notwithstanding the fact that  the  driver  would  continue  to  be  on  the
payroll of  the  original  owner.  The  proposition  based  on  the  general
principle as noticed above is adequately rebutted in this case not  only  on
the basis of the evidence led by the  parties  but  also  on  the  basis  of
Conditions 6 and 7 (supra), which go to show that the owner had  not  merely
transferred the services of the driver to the RSRTC but actual  control  and
the driver was to act under the instructions, control  and  command  of  the
conductor and other officers of the RSRTC.

18. Reliance placed by learned counsel for the appellant  on  Condition  No.
15 of the agreement (supra) in our view  is  misconceived.  Apart  from  the
fact that this clause in the agreement between the owner and the  RSRTC,  to
the extent it shifts the liability for the accident from the  RSRTC  to  the
owner, may be against the public policy as opined by the High Court,  though
we are not inclined to test the  correctness  of  that  proposition  of  law
because on facts, we find that RSRTC cannot  escape  its  liability  to  pay
compensation. The second part of Condition No. 15 makes it abundantly  clear
that the RSRTC did not completely shift the liability to the  owner  of  the
bus because it provided for reimbursement to  it  in  case  it  has  to  pay
compensation arising out of an accident. The words “if  the  Corporation  is
required to make any payment or incur any expenses  through  some  court  or
under some mutual compromise, the Corporation shall be able to recover  such
amounts from the owner of the bus after deducting the same from the  amounts
payable to him” in the later part of Condition No. 15 leave no ambiguity  in
that behalf and clearly go to show  the  intention  of  the  parties.  Thus,
RSRTC cannot escape its liability under Condition No. 15  of  the  agreement
either. Thus, both on facts and in law the  liability  to  pay  compensation
for the accident must fall on the RSRTC.”

    It is apparent that question of the liability of  the  insurer  did  not
come up  for  consideration  and  also  the  relevant  statutory  provisions
relating thereto in aforesaid decision.  This Court, considering  clause  16
of the agreement entered into by RSRTC and owner, held that  RSRTC  did  not
completely shift the liability to the owner of the bus in  case  it  has  to
pay compensation arising out of an accident.   In  the  instant  cases  also
there are certain clauses referred to  above  which  indicate  that  if  the
KSRTC has to make the payment, it can recover the same from  the  owner  out
of the amount payable by it or from the amount payable  by  the  insurer  to
the owner.  On the strength of decision in RSRTC  v.  Kailash  Nath  Kothari
(supra), the KSRTC being in actual control of  the  vehicle  would  also  be
liable to make the compensation, however, in our opinion it can recover  the
amount from the registered owner or insurer, as the case may  be.   In  fact
of the case, vis-à-vis, the claimants’ liability would be joint and  several
upon the KSRTC, registered owner and the insurer.
29.   In National Insurance Co. v. Deepa Devi  (supra),  vehicle  was  under
requisition by the State Government and that possession on  requisition  was
not covered by the definition of the owner under section 2(30)  in  the  Act
of 1988 or the Act of 1939.   It  was  held  by  this  Court  as  the  Motor
Vehicles Act did not envisage such a situation.  Owner in such  a  case  has
to be understood  from common sense point of  view.   Thus,  the  State  was
held  liable  to  make  the  payment  of  compensation.   The  question  was
altogether different in the aforesaid case.
30.   In Godavari Finance Company v. Degala Satyanarayanamma & Ors.,  (2008)
5 SCC 107, definition of owner came up for consideration.  It was held  that
the name of the financer  was  incorporated  in  the  registration  book  as
owner.  The respondent was held  to  be  owner  of  the  vehicle  which  was
purchased by him  on  being  financed  by  Godavari  Finance  Company.   The
financer could not be held liable to make the  payment  of  compensation  as
definition of the owner in the  Act  of  1939  is  a  comprehensive  one  as
vehicle which is the subject matter of hire purchase agreement,  the  person
in possession of the vehicle  under  that  agreement  shall  be  the  owner.
Thus, the name of the financer in the certificate would not be decisive  for
determination as to who was the owner of the vehicle.  In the case  of  hire
purchase agreement, financer cannot ordinarily be treated to  be  the  owner
and the person in possession  is  liable   to  pay  damages  for  the  motor
accident.  This Court has held thus:

“15. An  application  for  payment  of  compensation  is  filed  before  the
Tribunal constituted under Section 165 of the Act for adjudicating upon  the
claim for compensation in respect of accident involving  the  death  of,  or
bodily injury to, persons arising out of  the  use  of  motor  vehicles,  or
damages to any property of a third party so arising, or  both.  Use  of  the
motor vehicle is a sine qua non for entertaining a claim  for  compensation.
Ordinarily if driver of the vehicle  would  use  the  same,  he  remains  in
possession or control thereof. Owner of the vehicle, although may  not  have
anything to do with the  use  of  vehicle  at  the  time  of  the  accident,
actually he may be held to be constructively liable as the employer  of  the
driver. What is, therefore, essential for passing an award is  to  find  out
the liabilities of the persons who are involved in the use  of  the  vehicle
or the persons who are vicariously liable. The insurance company  becomes  a
necessary party to such claims as in the event the owner of the  vehicle  is
found to be liable, it would have to  reimburse  the  owner  inasmuch  as  a
vehicle is compulsorily insurable so far as a third party is  concerned,  as
contemplated under Section 147  thereof.  Therefore,  there  cannot  be  any
doubt whatsoever that the possession or control of a vehicle plays  a  vital
                                        (emphasis supplied by us)

This Court has observed in Godavari Finance Company (supra)  that  insurance
company in such a case becomes  a  necessary  party  as  it  would  have  to
reimburse the owner.
31.   In Uttar Pradesh State Road Transport Corporation v.  Kulsum  &  Ors.,
(2011) 8 SCC 142, this Court has considered the question  of  vehicle  given
on hire by owner of the vehicle to UPSRTC  with  its  existing  and  running
insurance policy.  It was held that the UPSRTC have become the owner of  the
vehicle during the specified period and vehicle having been insured  at  the
instance of the  original  owner,  it  would  be  deemed  that  vehicle  was
transferred alongwith  insurance  policy  to  UPSRTC.   The  insurer  cannot
escape the liability to pay  the  compensation.   The  appeal  preferred  by
UPSRTC was allowed.  The instant cases are more or less  the  same  and  the
decision of this Court  in  UPSRTC  v.  Kulsum  (supra)  also  buttress  the
submission raised by KSRTC.  This Court has held as under:

“30. Thus,  for  all  practical  purposes,  for  the  relevant  period,  the
Corporation had become the owner of the vehicle for the specific period.  If
the Corporation had become the owner even for the specific  period  and  the
vehicle having been insured at the instance of original owner,  it  will  be
deemed that the vehicle was transferred along with the insurance  policy  in
existence to the Corporation and thus the Insurance  Company  would  not  be
able to escape its liability to pay the amount of compensation.

31. The liability to pay compensation is based  on  a  statutory  provision.
Compulsory insurance of the vehicle is meant for the benefit  of  the  third
parties. The liability of the owner to have compulsory insurance is only  in
regard to third party and not to the property. Once the vehicle is  insured,
the owner as well as any other person can use the vehicle with  the  consent
of the owner. Section 146 of the Act does not provide that  any  person  who
uses the vehicle  independently,  a  separate  insurance  policy  should  be
taken. The purpose of compulsory insurance in the Act has been enacted  with
an object to advance social justice.”

32.   In HDFC Bank Limited v. Reshma & Ors., (2015) 3  SCC  679,  definition
of owner under the provisions of Section 2(30) of the Act of  1988  came  up
for consideration before a bench of 3 judges  of  this  Court.   This  Court
referred to the decisions of Godavari Finance  Company  (supra)  and  Pushpa
alias Leela & Ors. v. Shakuntala & Ors., (2011) 2 SCC 240 etc. in which  the
question  arose  whether  the  liability  to  pay  compensation  amount   as
determined by the Tribunal was of the purchaser  of  the  vehicle  alone  or
whether the  liability  of  the  recorded  owner  of  the  vehicle  was  co-
extensive. This Court in HDFC Bank Limited  v.  Reshma  &  Ors.(supra)  held

“22. In the present case, as the facts have  been  unfurled,  the  appellant
Bank had financed the owner for purchase of the vehicle and  the  owner  had
entered into a hypothecation agreement with the Bank. The borrower  had  the
initial obligation to insure the vehicle, but  without  insurance  he  plied
the vehicle on the road and the accident took place. Had  the  vehicle  been
insured, the insurance company would have been liable  and  not  the  owner.
There is no cavil over the fact that the  vehicle  was  the  subject  of  an
agreement of hypothecation and was in possession and control  of  Respondent
2. The High Court has proceeded both in the main judgment as well as in  the
review that the financier steps  into  the  shoes  of  the  owner.  Reliance
placed on Mohan Benefit (P) Ltd. V. Kachraji Raymalji (1997) 9 SCC  103,  in
our considered opinion, was inappropriate because in the  instant  case  all
the documents were filed by the Bank. In the said case, the two-Judge  Bench
of this Court had doubted the relationship between  the  appellant  and  the
respondent therein from the hire-purchase agreement. Be that as it may,  the
said case rested on its own facts. In the  decision  in  Rajasthan  SRTC  v.
Kailash Nath Kothari,(1997) 7 SCC 481 the Court fastened  the  liability  on
the Corporation regard being had to the definition of the  “owner”  who  was
in control and possession of the vehicle.  Similar  to  the  effect  is  the
judgment in National Insurance Co. Ltd. V. Deepa Devi, (2008) 1 SCC 414.  Be
it stated, in the said case the Court ruled that the State shall  be  liable
to pay the amount of compensation to the claimant  and  not  the  registered
owner of the vehicle and the insurance  company.  In  Pushpa  v.  Shakuntala
case,  (2011) 2 SCC 240 the learned Judges distinguished the ratio in  Deepa
Devi on the ground that it hinged on its  special  facts  and  fastened  the
liability on the insurer. In UPSRTC  v.  Kulsum,  (2011)  8  SCC  142,   the
principle stated in Kailash Nath Kothari was distinguished and  taking  note
of the fact that at the relevant time, the vehicle in question  was  insured
with it and the policy was very much in force and  hence,  the  insurer  was
liable to indemnify the owner.

23. On a careful analysis of the principles stated in the  foregoing  cases,
it is found that there is a common thread that the person in  possession  of
the vehicle under the  hypothecation  agreement  has  been  treated  as  the
owner. Needless to emphasise, if the vehicle  is  insured,  the  insurer  is
bound to indemnify unless there is violation of  the  terms  of  the  policy
under which the insurer can seek exoneration.

24. In Purnya Kala Devi v. State of Assam, (2014) 14 SCC 142, a  three-Judge
Bench has categorically held that the person in control  and  possession  of
the vehicle under an agreement of hypothecation should be construed  as  the
owner and not alone the  registered  owner  and  thereafter  the  Court  has
adverted to the legislative intention, and ruled that the  registered  owner
of the vehicle should not be held liable  if  the  vehicle  is  not  in  his
possession and control. There is reference to Section 146 of  the  Act  that
no person shall use or cause or allow  any  other  person  to  use  a  motor
vehicle in a public  place  without  insurance  as  that  is  the  mandatory
statutory  requirement  under  the  1988  Act.  In  the  instant  case,  the
predecessor-in-interest  of  the  appellant,   Centurion   Bank,   was   the
registered owner along with Respondent 2. Respondent 2 was  in  control  and
possession of the vehicle. He had taken the vehicle from the dealer  without
paying the full premium to the insurance company  and  thereby  getting  the
vehicle insured. The High Court has erroneously opined  that  the  financier
had the responsibility to get the vehicle insured, if  the  borrower  failed
to insure it. The said term in the hypothecation agreement does  not  convey
that the appellant financier had become the owner and  was  in  control  and
possession of the vehicle. It was the absolute  fault  of  Respondent  2  to
take the vehicle from the dealer without  full  payment  of  the  insurance.
Nothing has been  brought  on  record  that  this  fact  was  known  to  the
appellant financier or it was done in collusion  with  the  financier.  When
the intention of the legislature is quite clear to the effect, a  registered
owner of the vehicle should not be held liable if the vehicle is not in  his
possession and control and there is evidence on record  that  Respondent  2,
without the insurance plied  the  vehicle  in  violation  of  the  statutory
provision contained in Section 146 of the 1988 Act,  the  High  Court  could
not have mulcted the liability on the financier.  The  appreciation  by  the
learned  Single  Judge  in  appeal,  both  in  fact  and  law,   is   wholly

This Court has held that even when there was an agreement  of   and  vehicle
has been insured and  agreement holder is  treated  an  owner,  the  insurer
cannot escape the liability to make indemnification.

33.   In view of the decision in HDFC Bank Limited v. Reshma &  Ors.(supra),
the insurer cannot escape the liability, when ownership changes due  to  the
hypothecation agreement.  In the case of hire also,  it  cannot  escape  the
liability, even if the ownership changes.  Even though, KSRTC is treated  as
owner under  Section  2(30)  of  the  Act  of  1988,  the  registered  owner
continues to remain liable as per terms and conditions  of  lease  agreement
lawfully entered into with KSRTC.

34.   In view of the aforesaid discussion, we hold  that  registered  owner,
insurer  as  well  as  KSRTC  would  be  liable  to  make  the  payment   of
compensation jointly and severally to the claimants and the KSRTC  in  terms
of the lease agreement entered into  with  the  registered  owner  would  be
entitled to recover the amount paid to  the  claimants  from  the  owner  as
stipulated in the agreement or from the insurer.

      35.   The appeals are, accordingly, allowed.  Parties  to  bear  their
own costs.

                                             (H.L. Dattu)

New                                                                   Delhi;
October 27, 2015.                            (Arun Mishra)

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