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Judgment
Ramanujam, J.—The Plaintiff which is an insurance company, hereinafter called the insurer is the Appellant. It filed a suit against the Defendant here in after called the insured for recovery of a sum of Rs. 6,000 in the following circumstances: The Defendants lorry MDY 2575 was insured with the insurer for third party risks. The Defendant''s employee, the driver of the lorry, caused the death of two boys by his rash and negligent driving. The parents of the byes filed petition for compensation before the Motor Accident Claims Tribunal which awarded a compensation of Us. 8,000 as against the insurer. The insurer who was a party to the proceedings before the Tribunal took the matter in appeal to the High Court in Civil Miscellaneous Appeal 257 of 1963. impleading not only the claimants but also the Defendant as Respondents. In that appeal before the High Court the insurer arrived at a compromise with the claimants and settled the claim at Rs. 6,000 as against Rs. 8,000 awarded by the Tribunal. Thereafter the said amount of Rs. 6,000 Was paid by the insurer to the claimants. After payment the insurer filed the suit against the Defendant for reimbursement of the said amount of Rs. 6,000 on the basis that under that terms of the policy the insurer is not liable to pay the amount. The said suit was resisted by the Defendant on more than one ground. He contended that no amount was payable as compensation to the claimant as the driver of the lorry was acquitted by the criminal Court on the ground that there was no rash and negligent driving on his part, and that the decision of the Motor Accidents Claims Tribunal was erroneous. When the insurer filed an appeal before the High Court against the award given by the Tribunal, he engaged a separate lawyer to represent his case but instead of prosecuting the appeal the insurer settled the claim without his knowledge and behind his back He. therefore alleged that in any event, the payment having been mane in pursuance of a settlement, reimbursement cannot be claimed from him. Further he stated that the reimbursement claimed is not in accordance with the terms of the policy.
The trial Court, in the main, considered the following three matters, (1) whether the accident resulting in the death of the two boys was due to rash and negligent driving of the lorry, (2) whether the settlement of the claim between the insurer and the claimants was binding on the Defendants and (3) whether the insurer is entitled to the reimbursement claimed. So far as the first two matters are concerned, the trial Court found that the Defendant not being a party to the compromise entered into between the insurer and the claimants in the High Court in Civil Miscellaneous Appeal 257 of 1903 neither the finding given by the Tribunal that the accident was caused due to the rash and negligent driving of the lorry by the driver nor the terms of the compromise are binding on him. On the question whether the insurer is entitled to get reimbursement of the sum of Rs. 6,000 paid to the claimants in pursuance of the settlement before the High Court, the trial Court took the view that the insurer is entitled to get reimbursement of the amount in view of the following special clause found in the policy, exhibit B. 6. The clause in exhibit B.6 relied on by the trial Court runs as follows:
Nothing in this policy or any endorsement herein shall affect the right of any person indemnified by this policy or any other poison to recover an amount under or by virtue of the provisions of the Motor Vehicles Act, 1939 Section 96.
But the Insured shall repay to the Company all sums paid by the company which the company would not have been liable to pay but for the said provisions. The trial Court has taken the view that the liability of the insurer has arisen by virtue if Section 96 of the Motor Vehicles Act 1939, that but for that section the insurer would not have been made liable to pay the sum of Rs. 6,000 to the claimants and therefore, by virtue of the above clause in the policy which provides that the insured shall repay to the insurer all sums paid by the latter which it would not have been liable to pay but for Section 96, the insurer is entitled to recover the suit sum.
On appeal, however, the lower appellate Court took a different view. Before the lower appellate Court it was contended by the Defendant (insured) that the trial Court having found that the settlement during the pendency of the appeal in the High Court was arrived at behind the back of the insured, should have dismissed the suit and that instead of doing so the trial Court on an erroneous interpretation of the provisions of the Motor Vehicles Act as also the various clauses in the policy erred in decreeing the suit. The lower appellate Court, therefore, proceeded to consider the only question whether the insurer is entitled to invoke the reimbursements clause referred to above in the policy and recover the amount paid by it to the claimants. After referring to the various Sub-sections of Section 96 as also the terms of the policy, it took the view that the insurer is not entitled to claim reimbursement. The insurer questions the view taken by the lower appellate court.
From what has been stated above, it will clear that the question before this Court relates to the construction to be placed on the id reimbursement clause found in the policy. The clause in question provides that nothing in the policy or any endorsement therein will affect the right of the person indemnified by the policy or a third party to recover an amount under or by virtue of Section 96 of the Motor Vehicles Act. But the insurer is given the right to recover all sums paid to the person indemnified by the policy or any third party if it would not have been made liable to pay but for Section 96 of the Motor Vehicles Act, We have to therefore, find out the scope of Section 96 of the Motor Vehicles Act.
Chapter VIII of the Motor Vehicles Act deals with insurance of motor vehicles against third party risk. Section 94(1) of the Act prohibits the use of any motor vehicle in a public place by the owner or anyone on his behalf unless there is in force an insurance policy as required by the provisions of that chapter. Section 95 provides the requirements of such insurance policies, and the limits of liability. Section 95(I)(b) provides that the insurance policy contemplated by Section 94(1) must be one which insures the person or classes of persons specified in the policy to the extent specified in Sub-section (2) against any liable which may be incurred by him or them in respect of the death of or bodily injury to any person caused or arising out of the use of, the vehicle in a public place. Sub-section 2 (a) of Section 95 provides a limit of Rs. 20,000 in all in respect of death, of, or bodily injury to, employees (other than the driver) not exceeding six in number. Section 95(4) provides for the issue of a certificate of insurance in the prescribed form containing particulars of any conditions subject to which the policy issued. Section 95(5) makes the insurer liable to indemnify the person or classes of person specified in the policy in respect of any liability which the policy purports, to cover in the case of that person or classes of person. Section 96 enjoins the insurers to satisfy judgments against persons insured in respect of third party risks. Sub-section (1) of Section 96 provides that the insurer is bound to pay to the person entitled to the benefits of a decree he obtains in respect of any liability covered by the terms of the policy against any person insured by the policy irrespective of the fact that the insurer was entitled to avoid or cancel or might have avoided or cancelled the policy. This means that once the in under has issued a certificate of insurance in accordance with Section 95(4) he had to satisfy any decree obtained against the insured person in respect of injuries or death caused by the use of the vehicle.
But he insurer will be liable to satisfy the decree only when it has been served with a notice u/s 95(2) of the Motor Vehicles Act about the proceedings in which the decree was obtained. Sub-section 3 of Section 96 states that where a certificate of insurance has been issued u/s 95(4) by the insurer to a person by whom a policy has been affected, all restrictions and conditions other than those in Clause (6) of Sub-section (2) of Section 96 containing in the policy shall, to the extent of the liability covered by the policy be void and of no effect. The proviso to the said Sub-section (3) is as follows:
Provided that any sum paid by the insurer in or towards the discharge of any liability of any person winch is covered by the policy by virtue only of this Sub-section shall be recoverable by the insurer from that person.
Section 93(4) provides that if the amount for which the insurer becomes liable u/s 96 in respect of a liability incurred by the insured exceeds the amount for which the insurer would apart from the provisions of Section 96 be liable under the policy in respect of that liability, the insurer will be entitled to recover the excess from the insured. It is in the light of these provisions we have to consider the entitlement of the insurer to get reimbursement from the insured of the amount which the former has paid in respect of the third party risk.
The learned Counsel for the Appellant-insurer contends that under the said clause all sums paid by the insurer to third parties can be recovered from the insured as the third party risk has been undertaken by the insurer only by virtue of Section 96 of the Motor Vehicles Act, and that but for Section 96 the insurer would not have been made liable to pay any compensation on to the claimants. But a closer scrutiny of the relevant provision of chapter VIII of the Motor Vehicles Act will show that the contention of the learned Counsel for the Appellant is not tenable. A conjoint reading of Sections 94 to 96 indicates that Section 93 by itself does not create a liability to be discharged by the insurer in respect of claims against third parties. As a matter of fact, the Act itself does not directly create such a liability but it merely enjoins that the owner of the Motor Vehicles should have the vehicle insured as per the terms of Section 95(1)(b) which provisions in its turn provides that the insurance policy should also cover risks against third parties. So the liability to third parties is required to be covered by a policy u/s 95(1)(b) though the liability is in fact covered by the terms of the policy. Section 96(1) however, with a view to protect the rights of third parties, provides that the insurer is bound to indemnify the insured so far as his liability to third parties is concerned as per the policy issued even though the insurer was entitled to avoid or cancel or might have avoided or cancelled policy for breach of certain restrictions, conditions and limitations contained therein. For effectuating the said object all restrictions conditions and limitations contained in the policy other than those in Section 96(2)(b) are made invalid and ineffective by Sub-section (3) as regards the insurer''s liability to third parties. But the proviso to Section 93(6) enables the insurer to recover the amount which it had been made to pay to third parties merely by virtue of that Sub-section. The relevant reimbursement clause in the policy which is to be considered in this case is similar to the said proviso. Since the said clause refers to the liability imposed by Section 96, it has to be ascertained in what circumstances the insurer is made liable to meet the claim from third parties, though under the terms of the policy the insurer may be able to avoid such a claim.
It is not in dispute in this case that under Clause (1) of the policy, exhibit B 6, the insurer is liable to indemnify the insured in respect of third party claims. It is not the case of the insurer that it had avoided or cancelled the policy for breach of any of the conditions, restrictions or limitations therein. Section 96(1) directs that the insurer is bound to satisfy the judgments rendered against the insured in respect of third party risks even though the insurer may be entitled to avoid or cancel or might have avoided or cancelled the policy. The section would come into play only if the insurer is not liable to meet the claim of the third party under the terms of the policy either because the policy has been avoided or cancelled or because of the infringement of the terms of the policy. The object of this section is to keep the liability of the insurer as regards third parties under the policy, in tact, whatever might happen as between the insurer and the insured subsequent to the issue of the policy. Therefore, Section 96 can be said to make the insurer liable to third parties only in cases where the policy has been avoided for breach of its terms as a result of which the insurer is not liable to meet the claim of third parties, but not in a case where under the terms of the policy itself which was current on the date of the accident the insurer is liable. The proviso to Section 96(3) seems to make the position clear. It gives a right of recovery to the insurer only in cases where Sub-section (3) stands in the way of the insurer relying on the restrictions, limitations and conditions imposed by the terms of the policy. The right of recovery contemplated by that proviso cannot be invoked in a case where Sub-section (3) is not sought in and to impose a liability against the insurer. Similarly, the reimbursement clause in the policy in question gives a right of recovery only in cases where the insurer is made liable in respect of third party risks by virtue of Section 96 alone and not under the terms of the subsisting policy. Ordinarily the insurer will not pay any amount under the policy if there is a breach of infringement of the terms of the policy. But the virtue of Section 96(i) the insurer will have to meet the claims of third parties given in such a case, though the amount so paid can be recovered from the insured. Thus the right of recovery contemplated by the clause in question to cases where the insurer''s liability arises only because of Section 96 is not restricted and will not apply to cases where the liability arises under the terms of the policy itself without the aid of the said section. Therefore the interpretation sought to be placed by the learned Counsel for the insurer on the clause above referred to, cannot in any view be sustained. As already stated, it is under the terms of the policy the insurer has been made liable to third party in this case and Section 96 of the Motor Vehicle Act has not been invoked for imposing that liability. The view taken by the lower appellate Court has therefore, to be upheld. The result is the sound appeal fails and is dismissed. No costs. No leave.