Registered owner of vehicle not liable to pay compensation to claimant if the vehicle is not in his possession and control, holds the Supreme Court

Does ‘owner’ as defined under Section 2(30) of the Motor Vehicles Act, 1988 cover a financier who has entered into a hypothecation agreement with the borrower, who is in possession and control of the vehicle?, and whether the financier, not in possession or control of the vehicle, can be mulcted with liability?– were the questions that confronted the Apex Court in a case that was decided recently¹.

"a registered owner of the vehicle should not be held liable if the vehicle is not in his possession and control", ruled the Supreme Court in a recent case

Answering the issues in the negative, a Bench of the Apex Court comprising Justices Dipak Misra, Rohinton Nariman and U.U. Lalit, held that a registered owner of the vehicle should not be held liable if the vehicle is not in his possession and control.

First, the facts: On 20.12.2002 about 12.30 p.m., the claimant was going on a scooter when the Motor Cycle belonging to borrower and driven by another (3^rd respondent in the case), in a rash and negligent manner dashed against the scooter as a consequence of which she sustained injuries. Keeping in view, the injuries suffered and the amount she had spent in availing the treatment, she filed a claim petition putting forth the claim for Rs.4,50,000/-. The Motor Accidents Claims Tribunal awarded a sum of Rs.1,75,000/- with 6% interest to the claimant and opined that all the non-applicants to the claim petition were jointly and severally liable to pay the compensation amount. The compensation awarded by the Tribunal was enhanced to Rs. 3,00,000/- by the High Court of Judicature of Madhya Pradesh Bench at Indore in appeal.

The predecessor-in-interest of the appellant- Bank contended that it had only advanced a loan and the hypothecation agreement was executed on 1.11.2002 by it. As per the terms of the agreement, the owner of the vehicle was responsible to insure the vehicle at his own costs, and it could not be held liable.

The High Court referred to the definition clause in Section 2 (30) of the Motor Vehicles Act, 1988, took note of the language employed in Clause 16 of the agreement that if the owner neglects to get the vehicle insured the bank was required to get it insured, and the fact that the financer and the borrower were the registered owners and, accordingly opined that the bank was liable to pay. Being of this view the learned Judge dismissed the appeal preferred by the bank and partly allowed the appeal of the claimants.

Though the Bank preferred an application to review the said judgment, it was also dismissed by the learned Single Judge of the Madhya Pradesh High Court, whereupon the Bank approached the Supreme Court by way of a special leave petition against the judgment of the High Court.

Mr. Gopal Subramaniam, Senior Advocate, appearing for the appellant-Bank submitted that the bank does not intend to recover anything from the claimant but the legal position should be made clear so that the bank, which is the financer, is not unnecessarily dragged into this kind of litigation.

“There is no stipulation in the agreement that the financer would indemnify the borrower against the third party in the event of an accident and in the absence of such a postulate the interpretation placed by the High Court is absolutely erroneous”, contended Mr. Subramanium. It was urged by him that the role of the bank would come in when there is failure to insure the vehicle and, in any case, that will not fasten a statutory liability on the financer to pay the compensation to the third party, for the vehicle is not on the road by the financer or at its instance. Elaborating further, he submitted by him that if the owner does not pay, the bank will pay the insurance company and recover it from the borrower and hence, it would be inapposite to interpret the contract in a different way to fasten the liability on the financer.

The respondents did not enter appearance in the case despite service of notice.

On a careful analysis of the principles stated in Rajasthan State Road Transport Corporation V. Kailash Nath Kothari & Others², National Insurance Co. Ltd. V. Deepa Devi & Ors³, Pushpa alias Leela and others V. Shakuntala and others⁴,  T.V. Jose (Dr.) V. Chacko P.M⁵, Uttar Pradesh State Road Transport Corporation V. Kulsum and others⁵, and Purnya Kala Devi V. State of Assam & Anr.⁶ among others, the Apex Court 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.  

In Purnya Kala Devi (supra), the Court observed that 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.

The Apex Court accordingly held that when the intention of the legislature is quite clear to the effect that 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 the borrower, 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.

In coming to that conclusion, the Apex Court, relied on a line of decisions referred to above, including the one reported in Godavari Finance Company V. Degala Satyanarayanamma and others⁷, wherein the core question that arose for consideration was whether a financier would be an owner of the vehicle within the meaning of Section 2(30) of the 1988 Act. In that case the Apex Court had opined that in case of a motor vehicle which is subjected to a hire-purchase agreement, the financer cannot ordinarily be treated to be the owner. The person who is in possession of the vehicle, and not the financer being the owner would be liable to pay damages for the motor accident.

The Apex Court therefore had no hesitation in holding that the High Court had erroneously opined that the financier had the responsibility to get the vehicle insured, if the borrower failed to insure it. “The appreciation by the learned Single Judge in appeal, both in fact and law, is wholly unsustainable”, held the Apex Court.Accordingly, allowing the appeal filed by the Bank, the Apex Court held that the liability to satisfy the award is that of the owner, and not that of the financier and accordingly set aside that part of the direction in the award.

However, taking into account the concession made by Mr. Gopal Subramanium, the Bench directed that no steps shall be taken for realisation of the amount.

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1. C.A. Nos.  10608-10609 of 2014, decided on 01.12.2014

2. (1997) 7 SCC 481  

3. (2008) 1 SCC 414 

4. (2011) 2 SCC 240 

5 (2001) 8 SCC 748 

6. (2011) 8 SCC 142 

7. 2014 (4) SCALE 586 

Employee, in discharge of his duties, whether employed as driver or otherwise, would be entitled to compensation under clause (a) of the Proviso to Section 147 of the M.V. Act if the accident has occurred out of and in the course of his employment, holds the Full Bench of the Kerala High Court

A Full Bench of the High Court of Kerala affirming the decision in National Insurance Co. Ltd. v. Nimmy & Ors.¹ has held in United India Insurance Co. Ltd. v. P.R. Surendran² that if an employee in discharge of his duties, is engaged in driving a vehicle as permitted by his employer, irrespective of whether he is employed as driver or not, the employee would be entitled to the coverage of the proviso to Section 147 of the Motor Vehicles Act, 1988 (‘the M.V. Act’ for short), provided the accident has occurred out of and in the course of his employment.

(Representational picture)

A Full Bench of the Kerala High Court comprising Justices Antony Dominic, K. Ramakrishnan and Anil.K. Narendran was answering a reference made by a Division Bench of the High Court of Kerala doubting the correctness of the ratio in National Insurance Co. Ltd. v. Nimmy & Ors. (supra). In Nimmy’s case (supra), the deceased was employed by the 5^th respondent therein. While he was riding a scooter provided by his employer, an accident occurred out of and in the course of his employment. Following the accident, the claim was filed under the Workmen's Compensation Act. The Insurance Company contended that to get coverage of Clause (a) to the first proviso to Section 147, the employee mentioned in Clause (a) should be employed as a permanent driver of the owner of the vehicle. Repelling that contention, the Division Bench had held:

“It is not stated in the section that to get protection under this section one should be permanently employed as driver or the sole duty entrusted on him is driving. We are of the opinion that when an employee in driving the vehicle as part of his duty, he will come within the first proviso to Section 147(1) of the M.V. Act.”

The Division Bench, referring the appeals before it to the Full Bench, found, prima facie, that the coverage under the proviso to Section 147 of the M.V. Act is available only to those persons who are employed as drivers and are engaged in driving and not to other employees who were engaged in driving at the time of the accident. It was on this basis that it had doubted the correctness of the view taken in National Insurance Co. Ltd. v. Nimmy & Ors. (supra).

The appeals were filed filed by the United India Insurance Company Limited and the Oriental Insurance Company Limited against the awards passed by the Commissioner for Workmen's Compensation, Thrissur in W.C.C.Nos.361/2000 and 374/2003. The claimants in the workmen's compensation claims before the Commissioner for Workmen's Compensation, Thrissur were sales representatives employed by their respective employers. As part of their conditions of service, their employers had provided them two wheelers. While riding the vehicles in their course of their employment, they met with accidents, resulting in bodily injuries. This led the injured to file claims under the Workmen's Compensation Act, claiming the benefit of coverage of the insurance policy. This was in view of proviso (i) to Section 147 of the Motor Vehicles Act, 1988.

The Commissioner for Workmen's Compensation overruled the objection raised by the Insurance Companies that they are not liable under the proviso (i) to Section 147 of the M.V.Act and awarded compensation against the Insurance Companies. It is aggrieved by these awards that the aforesaid insurance companies had filed the appeals to the Division Bench of the High Court of Kerala, which were then referred to the Full Bench in the circumstances stated above.

The Insurance Companies contended that in order to get the coverage of

Clause (a) to the proviso to Section 147, an employee should be employed as a driver and should be engaged in driving.

The Full Bench referring to clause (a) of the proviso to Section 147 of the M.V. Act³, negatived the contention of the Insurance Companies on the ground that it is the settled position of law that when the language of a statute is unambiguous, the Courts are bound to literally interpret the statute and give full effect to the provisions. Writing the judgment for the Bench, Justice Antony Dominic held that “In so far as Clause (a) to the proviso to Section 147 is concerned, Section only uses the expression 'engaged in driving the vehicle' without specifying either the class of the vehicle which is covered by this provision or the nature of the employment of the person engaged in driving the vehicle, unlike clauses (b) and (c) to the proviso, which specifies the nature of the employment to claim coverage of the said provision. This, therefore, means that to claim coverage of Clause (a) to the proviso to Section 147 of the Act, the employee need only be engaged in driving the vehicle, irrespective of whether he was employed as driver or not…such coverage would be available only if the accident arose out of and in the course of his employment and only if the other requirements of the Workmen's Compensation Act are also satisfied.”

In reasoning this, the Full Bench relied, inter alia, on the judgment of a learned Single Judge in Oriental Insurance Co. Ltd. v. Davis⁴  wherein it was held thus:

“the legislative intention is clear that any injury sustained by an employee during the course of his employment has to be compensated if bodily injury or death has occasioned during his engagement in driving the vehicle. So much so, the word “engaged” in Clause (a) of proviso (i) indicates the duty or activity carried on by the workman at the time of suffering the accident, resulting in his death or in injuries to him. Hence, it would be an impermissible and an extremely restricted approach to hold that a person, who was employed as a driver, would alone fall under Clause (a) of Proviso (i). Therefore, the only manner in which Proviso (i) (a) of S.147(1) can be interpreted is by holding that it is not necessary for a person to be employed exclusively as a driver under an employer to sustain a claim referable to the said provision and one who is engaged in driving the vehicle, thereby meaning, driving the vehicle at the time of the accident, is entitled to compensation and insurance covered under the said proviso, provided he was in the employment of the employer and therefore a workman and still further, that he was driving the vehicle at the time of the  accident under due authorisation of the employer.”

The Bench also relied on the decisions of the High Court of Kerala in Benz Automobiles Ltd. v. Thomas⁵ and the judgment in M.A.C.A. No.1271/07 in holding that if an employee, in discharge of his duties, is engaged in driving a vehicle as permitted by his employer, irrespective of whether he is employed as driver or not, the employee would be entitled to the coverage of the proviso to Section 147, provided the accident has occurred out of and in the course of his employment.

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1. 2002 (1) KLJ 811

2. Judgment dated 12.11.2014 in MFA.No. 191 of 2005

3. “Provided that a policy shall not be required :

(i) to cover liability in respect of the death, arising out of and in the course of his

employment, of the employee of a person insured by the policy or in respect of bodily injury sustained by such an employee arising out of and in the course of his employment other than a liability arising under the Workmen's Compensation Act, 1923 (8 of 1923) in respect of the death of, or bodily injury to, any such

employee--

(a) engaged in driving the vehicle.”

4. 2006 (4) KLT 1013

5. 2008 (3) KLT 1015

Judgment in Cherian’s case permitting registration of transport vehicle as non-transport vehicle depending on user of the vehicle under challenge in writ appeal filed by Transport Authorities

The decision of the learned Single Judge of the Kerala High Court in Cherian v. Transport Commissioner and others¹  has now been challenged at the instance of the Transport authorities in writ appeal filed as W.A. No. 51 of 2014 before a Division Bench of the Kerala High Court. The delay of 1679 days occasioned in preferring the appeal by the Transport authorities was earlier condoned by the Court.

In Cherian², the petitioner had approached the High Court aggrieved by the stand taken by the Regional Transport Officer, Kozhikode and the Regional Transport Authority, Kozhikode that a vehicle ‘Mahindra Bolero Camper 4WD’ which he intended to purchase and use as a private vehicle for non-commercial purposes, could not be registered as a Light Motor Vehicle (LMV)/Motor Car and consequently, preferred the writ petition seeking a direction to the transport authorities to register the said vehicle as a Light Motor Vehicle (LMV)/Motor Car. The petitioner had contended that : (i) the refusal of the respondents to register the Mahindra Bolero Camper 4WD’ is illegal and without jurisdiction inasmuch the same ran contrary to the clarification issued by the Transport Commissioner in his circular to all transport authorities in the State; (ii) the Automotive Research Association of India (ARAI) having certified that the vehicle can be registered as a private vehicle which was accepted by the Transport Commissioner, there could be no justification for the Regional Transport Officer, Kozhikode to deny or delay registration, (iii) “the definition in the Motor Vehicles Act clearly shows that the vehicle which the petitioner intends to purchase is a Light Motor Vehicle, a motor vehicle which is a private service vehicle” and “therefore it cannot be a transport vehicle which means...a public service vehicle”; and (iv) the said vehicle is being registered in every other place in Kerala as well as in other states as a Light Motor Vehicle (LMV)/Motor Car.

The learned Single Judge relying on the ratio in Alex Thomas v. State of Kerala³ held that with respect to a vehicle which is constructed and adapted not for carriage of goods alone, the user of the vehicle is the prime aspect which needs to be considered for deciding the question whether it is to be treated as a transport vehicle or non-transport vehicle, and that in Cherian, since the vehicle in question is a light motor vehicle, it need to be given registration as light motor vehicle provided it is not used as a goods carriage. The learned Single Judge said : “If it is not used as a transport vehicle, it cannot be treated as a transport vehicle, but only as a non-transport vehicle”. Accordingly, the learned Single Judge passed judgment dated 13.03.2009 with directions to the Regional Transport Officer, Kozhikode and the Regional Transport Authority, Kozhikode to “issue registration to ‘Mahindra Bolero Camper 4WD’, if any brought by the petitioner for registration as a non-transport light motor vehicle.”

It is this judgment of the learned Single Judge in Cherian, a decision followed and relied upon in several cases of similar nature, that has now been impugned by the Transport authorities before the Division Bench of the Kerala High Court. 

The Transport authorities have inter alia, contended that : (i) the judgment of the learned Single Judge in Cherian was one passed without noticing or considering the judgment of the Division Bench in Saramma v. Regional Transport Officer, Ernakulam⁴ wherein the Court had held that it is for the authorities to take into account all relevant factors before classifying the vehicles as omnibus or transport vehicle and it is not open to the owners of the vehicle to convert the vehicles to suit their convenience; (ii) the vehicle in question has a gross vehicle weight not exceeding 3.5 tonnes and therefore comes under the N1 category according to the notification issued by the Central Government under sub-section (4) of Section 41 of the central Act, and the learned Single Judge’s findings are without considering the certificate issued by the ARAI; (iii) the judgment in Alex Thomas v. State of Kerala has no application to the case at all since the issues involved in both cases are dissimilar; (iv) when a vehicle is manufactured, built and prototype test conducted for the carriage of goods, which has much sanctity, the same cannot be altered for the carriage of passengers, unless so certified, and that no deviation can be permitted to be made by any registering authority from the classification approved by the manufacturer, based on the declaration of the individual purchaser since certification is an authentic document which determines the class of vehicle to which a particular vehicle can be categorized and (v) as the motor vehicles tax for goods version of vehicle is lesser compared to passenger vehicle certain persons have purchased the goods version of such vehicles in order to evade Sales tax, Excise duty, Customs duty, and motor vehicles tax, which is causing revenue loss to the State Exchequer. The Appellants have also disputed the findings of the learned Single Judge, on facts.

The appeal, when it came up for admission before a Division Bench comprising Acting chief Justice Ashok Bhushan and A.M. Shaffique, today, was listed for further consideration of the Court on 04.12.2014.

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1. 2009 (2) KLT 583

2. ibid

3. 2008 (4) KLT 603

4. 1995 (2) KLT 450