Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.5293 OF 2010
Managing Director, K.S.R.T.C. ... Appellant
Versus
New India Assurance Co.Ltd. & Anr. ... Respondents
With
Civil Appeal No.6641 of 2010
MD Karnataka Road Transport Corpn. & Anr. … Appellants
Versus
Thippamma & Ors. … Respondents
J U D G M E N T
ARUN MISHRA, J.
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
place.
13. Certain exception have been carved out in the proviso to sub-section
(1) of section 147. It is contained in proviso (ii) that the policy shall
not be required to cover any contractual liability. Limits of the
liability have been provided in Section 147(2). The liability under
Section 147(2)(1)(b) is the amount of liability incurred and with respect
to any damage to any property of a third party, a limit of Rs.6,000/-.
Section 147(5) provides that notwithstanding anything contained in any law
for the time being in force, an insurer shall be liable to indemnify the
person or classes of persons specified in the policy in respect of any
liability which the policy purports to cover in the case of that person or
those classes of persons.
14. Section 157 of the Act 1988 deals with the deemed transfer of
certificate of insurance. Provisions of Section 157 are as under:
“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
KSRTC.
6(ii) If because of any default by the bus owner or by his/her
drivers/other employees, agent representative, any liability comes on
KSRTC, the KSRTC has the right to recover the amount either from the bills
payable or the security deposit and to take further steps to recover the
balance from the private owner by any lawful means.”
17. The Conductor was to be provided under clause 7(iv) by the KSRTC and
was entitled to collect the fare and luggage charges etc. for and on behalf
of KSTRC.
18. As per clause 8, Drivers were to be engaged and provided by the
owner. Salary etc. was also to be paid by the owner and is subject to
other conditions such as they should not have been dismissed from the
services of the Central Government etc. and should possess requisite
licence.
19. Clause 14 of lease agreement with respect to insurance coverage is
also relevant which is extracted as under:
“14. The owner of the private bus shall keep the hired bus duly insured
under a Motor Vehicle comprehensive insurance police covering all risks and
all such costs shall be born by the owner of the private bus. In case of
failure to have a valid comprehensive insurance policy. The bus will not
be used for KSRTC’s operations and it will be deemed that the bus has not
been made available to KSRTC for scheduled operations, with all consequent
of effects. The insurance shall cover 61passengers.”
20. Clause 16 relating to liability as to accidents is also important for
the purpose of decision of the case. Clauses 16(a) (b) and (c) are
extracted as under:-
“(a) The owner of the bus alone shall be solely liable for any claim
arising out of any accident, damages or loss or hurt caused during the
operation of the bus. The KSRTC shall not be liable for any claims arising
out of the use of the buses, including claims made in connection with the
impurities or loss of life sustained by passengers, bus crew or any other
road user or to any property/person. Besides, all tortuous liability if
any, shall be borne by the owner or the insurer of the vehicle themselves.
However the accidents should be reported to the KSRTC office/Depot.
(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
liability.
25. Apart from that what is provided under Section 157 of the Act of 1988
is that the certificate of insurance and the policy described in the
certificate shall be deemed to have been transferred in favour of the
person to whom the motor vehicle is transferred with effect from the date
of its transfer. Even if there is a transfer of the vehicle by sale, the
insurer cannot escape the liability as there is deemed transfer of the
certificate of insurance. In the instant case it is not complete transfer
of the vehicle it has been given on hire for which there is no prohibition
and no condition/policy of insurance as shown to prohibit plying of vehicle
on hire. The vehicle was not used for inconsistent purpose. Thus, in the
absence of any legal prohibition and any violation of terms and conditions
of the policy, more so, in view of the provisions of Section 157 of the Act
of 1988, we are of considered opinion that the insurer cannot escape the
liability.
26. Now, we come to the question of exclusion of contractual liability
under second proviso to Section 147(1). When we read provisions of Section
147 with Section 157 together, it leaves no room for any doubt that there
is deemed transfer of policy in case of transfer of vehicle. Hence,
liability of insurer continues notwithstanding the contract of transfer 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-
table.
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
role.”
(emphasis supplied by us)
This Court has observed in Godavari Finance Company (supra) that insurance
company in such a case becomes a necessary party as it would have to
reimburse the owner.
31. In Uttar Pradesh State Road Transport Corporation v. Kulsum & Ors.,
(2011) 8 SCC 142, this Court has considered the question of vehicle given
on hire by owner of the vehicle to UPSRTC with its existing and running
insurance policy. It was held that the UPSRTC have become the owner of the
vehicle during the specified period and vehicle having 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
thus:
“22. In the present case, as the facts have been unfurled, the appellant
Bank had financed the owner for purchase of the vehicle and the owner had
entered into a hypothecation agreement with the Bank. The borrower had the
initial obligation to insure the vehicle, but without insurance he plied
the vehicle on the road and the accident took place. Had the vehicle been
insured, the insurance company would have been liable and not the owner.
There is no cavil over the fact that the vehicle was the subject of an
agreement of hypothecation and was in possession and control of Respondent
2. The High Court has proceeded both in the main judgment as well as in the
review that the financier steps into the shoes of the owner. Reliance
placed on Mohan Benefit (P) Ltd. V. Kachraji Raymalji (1997) 9 SCC 103, in
our considered opinion, was inappropriate because in the instant case all
the documents were filed by the Bank. In the said case, the two-Judge Bench
of this Court had doubted the relationship between the appellant and the
respondent therein from the hire-purchase agreement. Be that as it may, the
said case rested on its own facts. In the decision in Rajasthan SRTC v.
Kailash Nath Kothari,(1997) 7 SCC 481 the Court fastened the liability on
the Corporation regard being had to the definition of the “owner” who was
in control and possession of the vehicle. Similar to the effect is the
judgment in National Insurance Co. Ltd. V. Deepa Devi, (2008) 1 SCC 414. Be
it stated, in the said case the Court ruled that the State shall be liable
to pay the amount of compensation to the claimant and not the registered
owner of the vehicle and 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
unsustainable.”
This Court has held that even when there was an agreement of and vehicle
has been insured and agreement holder is treated an owner, the insurer
cannot escape the liability to make indemnification.
33. In view of the decision in HDFC Bank Limited v. Reshma & Ors.(supra),
the insurer cannot escape the liability, when ownership changes due to the
hypothecation agreement. In the case of hire also, it cannot escape the
liability, even if the ownership changes. Even though, KSRTC is treated as
owner under Section 2(30) of the Act of 1988, the registered owner
continues to remain liable as per terms and conditions of lease agreement
lawfully entered into with KSRTC.
34. In view of the aforesaid discussion, we hold that registered owner,
insurer as well as KSRTC would be liable to make the payment of
compensation jointly and severally to the claimants and the KSRTC in terms
of the lease agreement entered into with the registered owner would be
entitled to recover the amount paid to the claimants from the owner as
stipulated in the agreement or from the insurer.
35. The appeals are, accordingly, allowed. Parties to bear their
own costs.
........................................CJI.
(H.L. Dattu)
New Delhi;
….......................................J.
October 27, 2015. (Arun Mishra)
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.5293 OF 2010
Managing Director, K.S.R.T.C. ... Appellant
Versus
New India Assurance Co.Ltd. & Anr. ... Respondents
With
Civil Appeal No.6641 of 2010
MD Karnataka Road Transport Corpn. & Anr. … Appellants
Versus
Thippamma & Ors. … Respondents
J U D G M E N T
ARUN MISHRA, J.
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
place.
13. Certain exception have been carved out in the proviso to sub-section
(1) of section 147. It is contained in proviso (ii) that the policy shall
not be required to cover any contractual liability. Limits of the
liability have been provided in Section 147(2). The liability under
Section 147(2)(1)(b) is the amount of liability incurred and with respect
to any damage to any property of a third party, a limit of Rs.6,000/-.
Section 147(5) provides that notwithstanding anything contained in any law
for the time being in force, an insurer shall be liable to indemnify the
person or classes of persons specified in the policy in respect of any
liability which the policy purports to cover in the case of that person or
those classes of persons.
14. Section 157 of the Act 1988 deals with the deemed transfer of
certificate of insurance. Provisions of Section 157 are as under:
“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
KSRTC.
6(ii) If because of any default by the bus owner or by his/her
drivers/other employees, agent representative, any liability comes on
KSRTC, the KSRTC has the right to recover the amount either from the bills
payable or the security deposit and to take further steps to recover the
balance from the private owner by any lawful means.”
17. The Conductor was to be provided under clause 7(iv) by the KSRTC and
was entitled to collect the fare and luggage charges etc. for and on behalf
of KSTRC.
18. As per clause 8, Drivers were to be engaged and provided by the
owner. Salary etc. was also to be paid by the owner and is subject to
other conditions such as they should not have been dismissed from the
services of the Central Government etc. and should possess requisite
licence.
19. Clause 14 of lease agreement with respect to insurance coverage is
also relevant which is extracted as under:
“14. The owner of the private bus shall keep the hired bus duly insured
under a Motor Vehicle comprehensive insurance police covering all risks and
all such costs shall be born by the owner of the private bus. In case of
failure to have a valid comprehensive insurance policy. The bus will not
be used for KSRTC’s operations and it will be deemed that the bus has not
been made available to KSRTC for scheduled operations, with all consequent
of effects. The insurance shall cover 61passengers.”
20. Clause 16 relating to liability as to accidents is also important for
the purpose of decision of the case. Clauses 16(a) (b) and (c) are
extracted as under:-
“(a) The owner of the bus alone shall be solely liable for any claim
arising out of any accident, damages or loss or hurt caused during the
operation of the bus. The KSRTC shall not be liable for any claims arising
out of the use of the buses, including claims made in connection with the
impurities or loss of life sustained by passengers, bus crew or any other
road user or to any property/person. Besides, all tortuous liability if
any, shall be borne by the owner or the insurer of the vehicle themselves.
However the accidents should be reported to the KSRTC office/Depot.
(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
liability.
25. Apart from that what is provided under Section 157 of the Act of 1988
is that the certificate of insurance and the policy described in the
certificate shall be deemed to have been transferred in favour of the
person to whom the motor vehicle is transferred with effect from the date
of its transfer. Even if there is a transfer of the vehicle by sale, the
insurer cannot escape the liability as there is deemed transfer of the
certificate of insurance. In the instant case it is not complete transfer
of the vehicle it has been given on hire for which there is no prohibition
and no condition/policy of insurance as shown to prohibit plying of vehicle
on hire. The vehicle was not used for inconsistent purpose. Thus, in the
absence of any legal prohibition and any violation of terms and conditions
of the policy, more so, in view of the provisions of Section 157 of the Act
of 1988, we are of considered opinion that the insurer cannot escape the
liability.
26. Now, we come to the question of exclusion of contractual liability
under second proviso to Section 147(1). When we read provisions of Section
147 with Section 157 together, it leaves no room for any doubt that there
is deemed transfer of policy in case of transfer of vehicle. Hence,
liability of insurer continues notwithstanding the contract of transfer 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-
table.
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
role.”
(emphasis supplied by us)
This Court has observed in Godavari Finance Company (supra) that insurance
company in such a case becomes a necessary party as it would have to
reimburse the owner.
31. In Uttar Pradesh State Road Transport Corporation v. Kulsum & Ors.,
(2011) 8 SCC 142, this Court has considered the question of vehicle given
on hire by owner of the vehicle to UPSRTC with its existing and running
insurance policy. It was held that the UPSRTC have become the owner of the
vehicle during the specified period and vehicle having 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
thus:
“22. In the present case, as the facts have been unfurled, the appellant
Bank had financed the owner for purchase of the vehicle and the owner had
entered into a hypothecation agreement with the Bank. The borrower had the
initial obligation to insure the vehicle, but without insurance he plied
the vehicle on the road and the accident took place. Had the vehicle been
insured, the insurance company would have been liable and not the owner.
There is no cavil over the fact that the vehicle was the subject of an
agreement of hypothecation and was in possession and control of Respondent
2. The High Court has proceeded both in the main judgment as well as in the
review that the financier steps into the shoes of the owner. Reliance
placed on Mohan Benefit (P) Ltd. V. Kachraji Raymalji (1997) 9 SCC 103, in
our considered opinion, was inappropriate because in the instant case all
the documents were filed by the Bank. In the said case, the two-Judge Bench
of this Court had doubted the relationship between the appellant and the
respondent therein from the hire-purchase agreement. Be that as it may, the
said case rested on its own facts. In the decision in Rajasthan SRTC v.
Kailash Nath Kothari,(1997) 7 SCC 481 the Court fastened the liability on
the Corporation regard being had to the definition of the “owner” who was
in control and possession of the vehicle. Similar to the effect is the
judgment in National Insurance Co. Ltd. V. Deepa Devi, (2008) 1 SCC 414. Be
it stated, in the said case the Court ruled that the State shall be liable
to pay the amount of compensation to the claimant and not the registered
owner of the vehicle and 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
unsustainable.”
This Court has held that even when there was an agreement of and vehicle
has been insured and agreement holder is treated an owner, the insurer
cannot escape the liability to make indemnification.
33. In view of the decision in HDFC Bank Limited v. Reshma & Ors.(supra),
the insurer cannot escape the liability, when ownership changes due to the
hypothecation agreement. In the case of hire also, it cannot escape the
liability, even if the ownership changes. Even though, KSRTC is treated as
owner under Section 2(30) of the Act of 1988, the registered owner
continues to remain liable as per terms and conditions of lease agreement
lawfully entered into with KSRTC.
34. In view of the aforesaid discussion, we hold that registered owner,
insurer as well as KSRTC would be liable to make the payment of
compensation jointly and severally to the claimants and the KSRTC in terms
of the lease agreement entered into with the registered owner would be
entitled to recover the amount paid to the claimants from the owner as
stipulated in the agreement or from the insurer.
35. The appeals are, accordingly, allowed. Parties to bear their
own costs.
........................................CJI.
(H.L. Dattu)
New Delhi;
….......................................J.
October 27, 2015. (Arun Mishra)
