New India Assurance Co. Ltd. vs Karoline Wankhar & Ors

This is an appeal under Section 173 of the Motor Vehicles Act, 1988 (for brevity the M.V. Act) challenging the judgment and award dated 15.03.2018 passed by the learned Member, Motor Accident Claims Tribunal, Shillong (in short the "Tribunal") in M.A.C. Case No.99 of 2007 re-registered as MAC No.119 of 2013, whereby, compensation to the tune of Rs. 3,74,342/- has been awarded to the claimant along with interest @ 9% per annum from the date of filing of the petition i.e. 19.12.2007 till payment. The liability has been fastened upon the appellant-Insurance Company. Hence, the present appeal has been filed.

Briefly, the relevant facts as narrated in the appeal may be noticed.

As per the claim petition, on 14.11.2007 at about 12 noon there was a motor vehicle accident at St. Edmunds's College Campus, Shillong, East Khasi Hills District involving Maruti Van bearing registration No.ML 05 C 8456 and during the said accident, the respondent No.1/claimant had sustained severe injuries as a result of which 4th and 5th toe of her left leg had to be amputated. According to the appellant, the accident was caused due to rash and negligent driving of Shri Manna Das, helper of vehicle bearing registration No.ML 05 C 8456 who obtained the key from the driver of the said vehicle Shri Khem Bdr. Thapa (respondent No.3 herein). Thereafter, police had registered a case as Laitumkhrah P.S. Case No.91 (11) 07 under Sections 279/338 IPC against respondent No.3.

The appellant asserts that in the original application, the respondent-claimant had arrayed Shri Manna Das as O.P. No.2 but subsequently, on 08.04.2008 vide petition No.225 of 2008 sought to implead Shri Khem Bdr. Thapa as O.P. No.2 in place of Shri Manna Das and same was allowed on the same date. Thereafter, notices were issued to the owner, driver and the insurer of Maruti Van bearing registration No.ML 05 C 8456. Upon receipt of notices from the Tribunal, they entered appearance and filed their respective written statements except O.P. No.2 (respondent No.3 herein) who did not contest the claim. Vide order dated 29.08.2008 there were ex parte proceedings against the opposite party No.2 (respondent No.3 herein) the driver of Maruti Van bearing registration No.ML 05 C 8456 by the Tribunal. The Tribunal had framed the following issues on the basis of the pleadings of the parties. For ready reference, the issues framed by the Tribunal are reproduced hereunder:-

"(1) Whether the instant claim as filed by the claimant is maintainable?

(2) Whether the accident was caused due to the rash and negligent driving of the driver of vehicle No.ML 05 C 8456 (Maruti Van)?

(3) What is the nature and extent of the injuries suffered by the claimant and whether the same are grievous and permanent in nature?

(4) Whether the accident and the injuries were caused due to the contributory negligence of the claimant?

(5) Whether the OP/New India Assurance Co. Ltd. is liable to pay compensation to the claimant to indemnify the OP/Owner of vehicle No.ML 05 C 8456?

(6) Whether the claimant is entitled to compensation? If so to what extent?"

The Tribunal after appreciating the evidence on record and hearing the parties passed the impugned judgment and award dated 15.03.2018 holding that the appellant-Insurance Company is liable to pay the compensation of Rs. 3,74,342/- along with interest @ 9% per annum from the date of filing of the petition till payment. However, the appellant-Insurance Company had been granted right to recover amount of the award from the driver of the offending vehicle. Hence, the present appeal seeking quashing and setting aside of the judgment and award dated 15.03.2018 passed by the Tribunal.

Challenge to the award has been made by the appellant primarily on the ground that the right of recovery from the owner of the vehicle has not been accorded by the Tribunal.

Learned counsel for the appellant had sought to draw support from paras 6, 9 and 14 of the judgment of the Apex Court in the case of Sohan Lal Passi v. P. Sesh Reedy & ors: (1996) 5 SCC 21 to contend that the person who was driving the vehicle at the time of accident did not possess a valid driving license, therefore, right to recover the payment of compensation from the owner cannot be denied to the appellant-Insurance Company.

On the other hand, learned counsel for the respondent No.1 also relied on the same judgment of the Apex Court in the case of Sohan Lal Passi's case (supra), but drawing support from para 13 thereof, submitted that the owner had never authorized the helper of the vehicle to drive the vehicle who caused the accident resulting in injuries, thus, in such a situation, recovery rights against the owner of the vehicle had rightly not been given to the Insurance Company.

I have heard learned counsel for the parties.

The concept of 'pay and recover' applies where the liability of the insured is being discharged by the insurer but at the same time the insurer is entitled to recover it from the insured/driver on account of breach of the terms of the Insurance policy. The theory of 'pay and recover‟ is envisaged in those cases where the primary liability is of the insured who has committed the breach, whereas, it is directed to be discharged by the insurer who is granted right to recover the amount from the said defaulter. However, this would have no applicability where the insured is to be indemnified by the Insurance Company under Insurance Policy. In such a situation, the principle of „pay and recover‟ would have no applicability. The underlined idea in this concept is to provide an easy mode of getting compensation by the claimants so that their hardship to recover the compensation amount from the owner/driver of the offending vehicle is mitigated. In other words, under this the Insurance Company is required to discharge the liability of compensation to the claimant and since the primary liability is of the insured/driver, a right to recover is conferred on the Insurance Company in that behalf.

Doctrine of 'pay and recover' was recognized by three Judges Bench of the Supreme Court in National Insurance Co. Ltd. v. Swaran Singh & ors: (2004) 3 SCC 297 wherein it was recorded as under:-

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

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

It is well-settled rule of law and should not ordinarily be deviated from. (See Bengal Immunity Co. Limited v. State of Bihar36: AIR 1955 SC 661: (1955) 2 SCR 603, SCR at pp. 630-32, Keshav Mills Co. Ltd. v. CIT37: AIR 1965 SC 1636: (1965) 2 SCR 908, SCR at pp. 921-22, Union of India v. Raghubir Singh38: (1989) 2 SCC 754: (1989) 3 SCR 316, SCR at pp.323, 327, 334, Gannon Dunkerley and Co. v. State of Rajasthan39: (1993) 1 SCC 364, Belgaum Gardeners Coop. Production Supply and Sale Society Ltd. Vs. State of Karnataka40: 1993 Supp (1) SCC 96 (1) and Hanumantappa Krishnappa Mantur v. State of Karnataka41: 1992 Supp (2) SCC 213: 1992 2 SCC (Cri) 667).

We may, however, hasten to add that the Tribunal and the court must, however, exercise their jurisdiction to issue such a direction upon consideration of the facts and circumstances of each case and in the event such a direction has been issued, despite arriving at a finding of fact to the effect that the insurer has been able to establish that the insured has committed a breach of contract of insurance as envisaged under sub-clause (ii) of clause (a) of sub-section (2) of Section 149 of the Act, the insurance company shall be entitled to realise the awarded amount from the owner or driver of the vehicle, as the case may be, in execution of the same award having regard to the provisions of Sections 165 and 168 of the Act . However, in the event, having regard to the limited scope of inquiry in the proceedings before the Tribunal it had not been able to do so, the insurance company may initiate a separate action therefor against the owner or the driver of the vehicle or both, as the case may be. Those exceptional cases may arise when the evidence becomes available to or comes to the notice of the insurer at a subsequent stage or for one reason or the other, the insurer was not given an opportunity to defend at all. Such a course of action may also be resorted when a fraud or collusion between the victim and the owner of the vehicle is detected or comes to the knowledge of the insurer at a later stage."

This decision was followed in Shamanna & anr v. Divisional Manager, the Oriental Insurance Co. Ltd. & ors: Civil Appeal No.8144 of 2018 arising out of SLP (C) No.26955 of 2017 decided on 08.08.2018 with the following observations:-

"6. In the case of third party risks, as per the decision in National Insurance Company Ltd. v. Swaran Singh and others (2004) 3 SCC 297, the insurer had to indemnify the compensation amount payable to the third party and the insurance company may recover the same from the insured. Doctrine of "pay and recover" was considered by the Supreme Court in Swaran Singh case wherein the Supreme Court examined the liability of the insurance company in cases of breach of policy condition due to disqualifications of the driver or invalid driving licence of the driver and held that in case of third party risks, the insurer has to indemnify the compensation amount to the third party and the insurance company may recover the same from the insured. Elaborately considering the insurer's contractual liability as well as statutory liability vis-a-vis the claims of third parties, the Supreme Court issued detailed guidelines as to how and in what circumstances, "pay and recover" can be ordered."

Learned counsel for the appellant-Insurance Company had relied upon paras 6, 9 and 14 of the judgment of the Apex Court in Sohan Lal Passi's case (supra) whereas, support was drawn from observations in para 13 of the same judgment by the respondent-owner. Therefore, in all fairness, the judgment in Sohan Lal Passi's case (supra) requires to be analyzed in detail.

The facts in Sohan Lal Passi's case (supra) were that an accident took place on 08.06.1980 at Panaji, between bus bearing No.DLP-5843 and scooter bearing No.GDC-9713, as a result of the accident, Dr. P. Ramachandra Reddy, who was driving the scooter died. A claim petition was filed before the Tribunal. The appellant was the owner of the bus which had been insured by respondent No.3-Insurance Company.

Respondent No.4 Rajinder Pal Singh was the cleaner/conductor of the bus who was driving the offending vehicle at the time of accident resulting in the death of Dr. P. Ramachandra Reddy. The owner of the vehicle sought to repudiate his liability on the ground that the driver, Gurbachan Singh who was engaged by him was having a valid driving license and, therefore, the Insurance-Company was liable to pay the compensation. The stand taken up by the Insurance-Company was that the vehicle was driven by respondent No.4-cleaner/conductor who was not holding the driving license, thus, absolving the Insurance-Company of its liability to pay compensation as under the Insurance Policy only person holding a valid driving license could have driven the bus in question.

The Tribunal had concluded that accident was result of rash and negligent driving of the bus by respondent No.4 who did not hold a valid driving license. The Insurance-Company was discharged of its liability to pay the compensation and direction was issued to the owner and the driver to pay the amount of compensation to the claimants. The owner and the driver of the vehicle challenged the award of the Tribunal before the High Court. It was held that the liability to pay the compensation between the owner of the bus, vis-à-vis the Insurance-Company was that of the owner of the vehicle and no liability could be fastened on the Insurance-Company as the vehicle was being driven by a person who was not holding a valid driving license at the time of accident. The decision of the High Court was assailed before the Apex Court.

The Apex Court considering various provisions of the statute and its past decisions, allowed the appeal and the Insurance-Company was held jointly and severally liable to pay the compensation to the claimants. The appellant was held liable to pay compensation applying the principles of vicarious liability as the accident took place when the act authorized was being performed in a mode which was not proper but was directly connected with the course of employment as the vehicle was being driven by Rajinder Pal Singh who was an employee of the owner/appellant though authorized by the driver- Gurbachan Singh even without the consent/knowledge of the owner. The said decision nowhere had discussed the issue of 'pay and recover' and, therefore, it would not advance the case of either of the parties.

The Supreme Court for its aforesaid conclusion had drawn support from its earlier two judgments i.e., Skandia Insurance Co. Ltd. vs. Kokilaben Chandravadan & ors: (1987) 2 SCC 654 and Kashiram Yadav & anr v. Oriental Fire and General Insurance Co. & ors: (1989) 4 SCC 128.

In Skandia Insurance Co. Ltd. case (supra), it was expressly laid that if the person who had got the vehicle insured, allowed the vehicle to be driven by a person who was not duly licensed, then the Insurance-Company shall stand discharged from honouring the liability under the Insurance Policy. However, where the insured had appointed a duly licensed driver and the accident took place when the vehicle was driven by a person not duly licensed but authorized by the driver who had the authority to drive the vehicle, the Insurance-Company was held liable to pay the compensation to the claimants and could be absolved of its liability, provided the Insurance-Company established that the insured was guilty of wilful infringement or violation of the terms of Insurance Policy as the driver at the time of accident driving the vehicle was with his active consent and knowledge. Alternatively put, it was laid down that if the insured had taken all precautions by appointing a duly licensed driver to drive the vehicle and it was not established that it was the insured who allowed the vehicle in question to be driven by a person not duly licensed driver, the Insurance-Company cannot repudiate its statutory liability to pay the compensation. It was further noted that unless it was established on the material on record that the insured had wilfully violated the condition of the policy by allowing the person not duly licensed to drive the vehicle at the time when accident took place, the insurer shall be deemed to be judgment debtor in respect of the liability to pay the compensation under the M.V. Act.

The aforesaid proportion of law was reiterated by the Supreme Court in Kashiram Yadav's case (supra) and Swaran Singh's case (supra).

From the above it emerges that there are two situations. Firstly, the Insurance Company cannot repudiate its statutory liability under the M.V. Act to pay compensation where the insured has taken all precautions by appointing a duly licensed driver to drive the vehicle in question and it is not established that it was the insured who allowed the vehicle to be driven by a person not duly licensed. However, there is an exception where the insurer escapes from liability to pay compensation in respect of third party risk, where it establishes that there has been breach of specified condition of policy on the part of the owner of the vehicle as it was being driven by a person disqualified for holding a valid driving license.

Now examining the factual matrix in the present case, the owner of the vehicle had engaged a driver-Shri Khem Bdr. Thapa holding valid driving license. The driver had unauthorizedly allowed Manna Das-helper to drive the vehicle who was not holding a valid driving license. In view of Sohan Lal Passi's case (supra), since Manna Das-the helper was an employee of the insured though the act was being performed in a mode which was not proper but was connected with the course of employment, the insured and the insurer would be jointly and severally liable to pay compensation applying the principles of vicarious liability. The insurer has not established that the owner/insured in any way was involved in authorizing Manna Das to drive the vehicle. Thus, there was no breach of any condition of the Insurance Policy. In such a situation, the insured had to be indemnified by the Insurance Company under the Insurance policy as the driver employed by the insured was having valid driving license but he in turn had authorized another person who did not possess valid driving license and had caused accident resulting in injuries to the claimant. Once that was so, the liability to pay the compensation amount was required to be discharged by the insurer. The question of 'pay and recover' in such a situation could not be granted against the insured-owner of the vehicle. Nevertheless, the Insurance Company would have recovery rights against the driver who had illegally authorized the helper to drive the vehicle which Tribunal has already accorded to the insurer. Perhaps it was because of this reason that no such claim of recovery rights from the insured was laid before the Tribunal by the Insurance Company. In view of the above, no error could be pointed out by the Insurance Company in the award passed by the Tribunal. The appeal is, thus, dismissed.

The amount of deposit made by the Insurance Company at the time of filing of the appeal is directed to be released to the claimant directly through cheque/draft by the Registry of this Court. The record of the Tribunal be returned forthwith.