Supreme Court clarifies insurer’s liability in motor accident claims despite vehicle transfer: Firdaus vs. Oriental Insurance Co. Ltd. (2017)

Date of the Judgment: 14 July 2017

Citation: (2017) INSC 622

Judges: Hon’ble Mr. Justice A.K. Sikri and Hon’ble Mr. Justice Ashok Bhushan

Can an insurance company avoid paying compensation for a motor accident just because the vehicle’s ownership changed hands without their knowledge? The Supreme Court of India addressed this crucial question in a case where a vehicle insured by one owner was involved in an accident after being transferred to another person. The court clarified that the insurance company remains liable to third parties, regardless of the vehicle’s transfer, emphasizing the compulsory nature of third-party insurance.

The bench comprised of Hon’ble Mr. Justice A.K. Sikri and Hon’ble Mr. Justice Ashok Bhushan, with the judgment authored by Hon’ble Mr. Justice Ashok Bhushan.

Case Background

On September 1, 2003, Parvez Khan was driving vehicle No. HR-2 G 1875 from Hapur to Rampur when it was struck by a truck, No. UP 22 C-9714, coming from the opposite direction. Parvez Khan died on the spot due to the accident. Abdul Khalid, the father of the deceased, filed a claim for compensation before the Workmen Compensation Commissioner, seeking Rs. 4,50,000 with 12% interest and a 50% penalty.

The respondents in the appeal were M/s Santosh Dental Hospital (defendant no. 1), the original owner of the vehicle, Mohd. Anis (defendant no. 4), who claimed to be the new owner, and Oriental Insurance Co. Ltd. (defendant no. 3), the insurer of the vehicle. The claim stated that Parvez Khan was employed by defendants 1, 2, and 4 and earned Rs. 4,000 per month. M/s Santosh Dental Hospital claimed they had sold the vehicle to Mohd. Anis.

It was undisputed that the vehicle was insured with Oriental Insurance Co. Ltd. from November 6, 2002, to November 5, 2003, covering the date of the accident.

Timeline

Course of Proceedings

The Workmen Compensation Commissioner allowed the claim, awarding Rs. 4,27,148 with 12% interest. The Oriental Insurance Co. Ltd. appealed to the High Court of Judicature at Allahabad, which set aside the Commissioner’s award and remanded the case for fresh consideration. The High Court reasoned that since the claimant admitted his son was an employee of Mohd. Anis, it was not proven that he was an employee of M/s Santosh Dental Hospital, the insured. The High Court questioned the liability of the insurance company, given the vehicle was insured under the ownership of M/s Santosh Dental Hospital. The High Court stated that the inter-se relationship of employer and employee with defendant no.1 and deceased has not been considered.

Legal Framework

The Supreme Court considered the following provisions of the Motor Vehicles Act, 1988:

• Section 146: This section mandates that no person shall use a motor vehicle in a public place without a valid insurance policy covering third-party risks.
• Section 147: This section specifies the requirements for policies of insurance, including coverage for third-party liabilities.
• Section 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. [Explanation.- For the removal of doubts, it is hereby declared that such deemed transfer shall include transfer of rights and liabilities of the said certificate of insurance and policy of insurance].” This section states that when a vehicle is transferred, the insurance policy is automatically deemed to be transferred to the new owner.

The Court noted that the compulsory insurance under the Motor Vehicles Act is primarily for the benefit of third parties, ensuring they receive compensation for injuries or death caused by motor accidents.

Arguments

Appellant’s Arguments (Firdaus):

• The appellant argued that since the vehicle was insured with Oriental Insurance Co. Ltd. on the date of the accident, the insurance company is liable to pay compensation.
• It was contended that there was no proof that M/s Santosh Dental Hospital (defendant no. 1) had transferred the vehicle to defendant no. 4.
• Even if the vehicle was transferred, the liability of Oriental Insurance Co. Ltd. remains unaffected, relying on the judgment in Rikhi Ram And Another vs. Sukhrania (Smt) And Others 2003 (3) SCC 97.

Respondent’s Arguments (Oriental Insurance Co. Ltd.):

• The insurance company argued that the High Court rightly remanded the matter to determine their liability.
• They contended that it was not proven that Mohd. Anis, the alleged employer of the deceased, was an employee of M/s Santosh Dental Hospital, who got the vehicle insured.
• The insurance company’s liability should only arise if the deceased was an employee of the insured, M/s Santosh Dental Hospital.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues but addressed the following key questions:

1. Whether the High Court was correct in remanding the case to determine the liability of the Oriental Insurance Co. Ltd.
2. Whether the insurance company’s liability to pay compensation ceases if the vehicle is transferred to another person without intimation to the insurer.
3. Whether the claimant has to prove that the deceased was an employee of the insured to claim compensation from the insurance company.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

• Rikhi Ram And Another vs. Sukhrania (Smt) And Others 2003 (3) SCC 97, Supreme Court of India: This case held that the liability of an insurer to pay compensation to a third party does not cease even if the vehicle is transferred without intimation to the insurer. The Court held that compulsory insurance is for the benefit of third parties.
• G. Govindan v. New India Assurance Co. Ltd. and Ors., Supreme Court of India: This case established that the insurer’s liability to a third party is not affected by the absence of intimation of the vehicle’s transfer.
• Section 146, Motor Vehicles Act, 1988: Mandates compulsory insurance for motor vehicles.
• Section 147, Motor Vehicles Act, 1988: Specifies the requirements for insurance policies.
• Section 157, Motor Vehicles Act, 1988: Provides for the deemed transfer of insurance policies upon the transfer of vehicle ownership.

Judgment

The Supreme Court allowed the appeal, setting aside the High Court’s order and restoring the award of the Workmen Compensation Commissioner.

How each authority was viewed by the Court?

• Rikhi Ram And Another vs. Sukhrania (Smt) And Others [2003 (3) SCC 97]*: The Court followed this judgment, stating that the ratio of this case is fully applicable to the present case.

The Court emphasized that the focus should be on the fact that the vehicle was insured, and the insurance company’s liability to third parties is not affected by the transfer of the vehicle.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the principle that compulsory insurance is for the benefit of third parties. The court emphasized that the insurance policy is tied to the vehicle and the liability of the insurance company is not dependent on the employer-employee relationship between the deceased and the insured. The Court also noted that the High Court should not have remanded the case based on the claimant’s statement about his son’s employer. The Court emphasized that the High Court should have drawn an adverse inference against defendant no.1 for not producing the Registration Certificate of the vehicle.

The Court’s reasoning was heavily influenced by the legal provisions of the Motor Vehicles Act, 1988, and the precedents set by previous Supreme Court judgments. The factual aspects of the case, such as the ownership of the vehicle, were secondary to the legal principle of third-party protection.

The Court reasoned that the High Court erred in remanding the case. The Court held that the insurance company is liable to pay compensation to the third party even if the vehicle was transferred to another person without intimation to the insurer. The Court also held that the employer-employee relationship between the deceased and the insured was not relevant for determining the insurance company’s liability to third parties. The Court also noted that the High Court should have drawn an adverse inference against defendant no.1 for not producing the Registration Certificate of the vehicle.

The Supreme Court stated:

• “Even if it is assumed for the sake of arguments that vehicle was transferred from defendant no.1 to defendant no.4, there will be no consequence with regard to liability of Oriental Insurance Co. Ltd. to pay compensation.”
• “The reliance on the mere submission of the claimant that his son was an employee of Mohd. Anis – defendant no.4 has no significance.”
• “In either of the eventuality, i.e. whether defendant no.1 was the owner of the vehicle on the date of the accident, or defendant no.4 was the owner of the vehicle, the liability of Oriental Insurance Co. Ltd. continues and Workmen compensation Commissioner has rightly fastened the liability on the Insurance Company.”

The Court rejected the argument that the insurance company’s liability is contingent upon the deceased being an employee of the insured. The Court emphasized that the compulsory insurance is for the benefit of third parties and the liability of the insurer is not affected by the transfer of the vehicle.

Key Takeaways

• Insurance companies cannot avoid liability to third parties in motor accident claims simply because the insured vehicle was transferred to another person without their knowledge.
• The insurance policy is tied to the vehicle, and the compulsory insurance is meant to protect third parties.
• The employer-employee relationship between the deceased and the insured is not relevant for determining the insurance company’s liability to third parties.
• The Supreme Court has reinforced the principle that the insurance company’s liability to third parties is not affected by the transfer of the vehicle.

Directions

The Supreme Court directed the Workmen Compensation Commissioner to take steps for ensuring the payment of compensation to the claimants.

Specific Amendments Analysis

There was no specific amendment discussed in the judgment.

Development of Law

The ratio decidendi of this case is that the liability of the insurance company to pay compensation to a third party continues even if the vehicle is transferred to another person without intimation to the insurer. This judgment reinforces the principle that the compulsory insurance is for the benefit of third parties and the insurance policy is tied to the vehicle. There is no change in the previous position of law, rather the Supreme Court has reiterated the same.

Conclusion

In conclusion, the Supreme Court’s judgment in Firdaus vs. Oriental Insurance Co. Ltd. clarifies that insurance companies cannot evade their liability to third parties in motor accident claims by citing the transfer of vehicle ownership without their knowledge. The Court emphasized that the compulsory insurance is for the benefit of third parties, and the insurance policy is tied to the vehicle. The Court set aside the High Court’s order and restored the award of the Workmen Compensation Commissioner.