Supreme Court clarifies liability in bus accident cases: U.P. State Road Transport Corporation vs. Rajendri Devi (2020)

LEGAL ISSUE: Determining the liability for compensation in motor accident cases involving buses hired by a State Road Transport Corporation.

CASE TYPE: Motor Vehicle Accident Claim

Case Name: U.P. State Road Transport Corporation vs. Rajendri Devi & Ors.

[Judgment Date]: June 08, 2020

Date of the Judgment: June 08, 2020

Citation: (2020) INSC 450

Judges: Rohinton Fali Nariman, J., Navin Sinha, J., B.R. Gavai, J.

When a bus operating under contract with a State Road Transport Corporation causes an accident, who is liable to pay compensation? The Supreme Court of India addressed this question, clarifying the responsibilities of the Corporation, the bus owner, and the insurance company. This case revolves around a fatal accident involving a bus hired by the Uttar Pradesh State Road Transport Corporation (UPSRTC), and it examines whether the Corporation alone is liable for compensation or if the insurance company should also bear the responsibility. The judgment was delivered by a three-judge bench comprising Justices Rohinton Fali Nariman, Navin Sinha, and B.R. Gavai, with the opinion authored by Justice Nariman.

Case Background

On August 16, 2001, a 45-year-old individual was fatally struck by a bus while riding a bicycle. The Motor Accident Claims Tribunal (MACT) determined that the accident was caused by the rash and negligent driving of the bus driver. The bus was owned by a private individual but was operating under an agreement with the Uttar Pradesh State Road Transport Corporation (UPSRTC). The MACT calculated the annual income of the deceased to be ₹18,000, deducted one-third for personal expenses, and applied a multiplier of 13, resulting in a compensation of ₹1.65 lakhs, along with 8% interest.

The MACT, relying on the precedent set in Rajasthan State Road Transport Corporation v. Kailash Nath Kothari (1997) 7 SCC 481, held that the entire compensation amount should be paid by the UPSRTC and not the insurance company. The MACT reasoned that since the bus was under the control of the UPSRTC, the responsibility for compensation rested solely with the Corporation.

Timeline

Course of Proceedings

The Motor Accident Claims Tribunal (MACT) initially ruled that the UPSRTC was solely liable for the compensation, citing the Kailash Nath Kothari judgment. The High Court of Judicature at Allahabad upheld this decision, emphasizing that the agreement between the UPSRTC and the bus owner did not absolve the Corporation of its responsibility to pay compensation to the victim’s family. The High Court also noted that the agreement was between the Corporation and the owner and did not affect the rights of the claimants.

Legal Framework

The case primarily revolves around the interpretation of the term “owner” under the Motor Vehicles Act. The Supreme Court considered the definition of “owner” under Section 2(19) of the old Motor Vehicles Act, 1939, and Section 2(30) of the Motor Vehicles Act, 1988.

Section 2(30) of the Motor Vehicles Act, 1988 defines “owner” as:

“’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;”

Section 2(19) of the Motor Vehicles Act, 1939, defined “owner” as:

“’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;”

The Court also referred to Section 146 of the Motor Vehicles Act, 1988, which mandates compulsory insurance for vehicles to cover third-party liabilities.

Arguments

The appellant, UPSRTC, argued that Clause 10 of the agreement between the Corporation and the bus owner absolved them of any liability for the driver’s negligence. The clause stated that the bus owner would be fully liable for any accident caused by the driver, and the Corporation would not be responsible for any compensation.

The insurance company argued that since the bus was under the control of UPSRTC, the Corporation should be responsible for the compensation, relying on the decision in Kailash Nath Kothari.

The respondents, the victim’s family, argued that they were entitled to compensation under the Motor Vehicles Act, regardless of the agreement between the UPSRTC and the bus owner.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue can be summarized as:

• Who is liable to pay compensation in a motor accident case when a bus, owned by a private individual, operates under a contract with a State Road Transport Corporation?

Treatment of the Issue by the Court

The following table demonstrates how the Court addressed the issue:

Authorities

The Court considered the following authorities:

Judgment

The Supreme Court allowed the appeal and held that the insurance company, not the UPSRTC, was liable to pay the compensation awarded by the MACT.

The Court distinguished the case of Rajasthan State Road Transport Corporation v. Kailash Nath Kothari (1997) 7 SCC 481, stating that it was decided under the old Motor Vehicles Act, 1939, which had a different definition of “owner.” The Court relied on the judgment in Uttar Pradesh State Road Transport Corporation v. Kulsum and Ors. (2011) 8 SCC 142, which clarified that under the Motor Vehicles Act, 1988, the insurance company is liable when a vehicle is insured, even if it is operating under a contract with a transport corporation.

The Court stated:

“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.”

The Court also observed:

“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.”

The Court further stated:

“In the instant case, the driver was employed by Ajay Vishen, the owner of the bus but evidently through Clause 4.4 of the agreement, reproduced hereinabove, driver was supposed to drive the bus under the instructions of the conductor who was appointed by the Corporation. The said driver was also bound by all orders of the Corporation. Thus, it can safely be inferred that effective control and command of the bus was that of the appellant.”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the statutory provisions of the Motor Vehicles Act, 1988, particularly Section 2(30), which defines “owner.” The Court emphasized that the purpose of compulsory insurance is to protect third parties and that the insurance company should not be allowed to evade its liability. The Court also considered the practical aspects of control and command over the vehicle, noting that even though the driver was employed by the bus owner, he was operating under the instructions of the Corporation’s conductor. The Court’s interpretation of the law was also influenced by the need to provide social justice to the victims of road accidents.

Logical Reasoning

Key Takeaways

• The insurance company is primarily liable for compensation in motor accident cases involving buses operating under contract with a State Road Transport Corporation.
• The definition of “owner” under Section 2(30) of the Motor Vehicles Act, 1988, is crucial in determining liability.
• Agreements between the Corporation and the bus owner do not affect the rights of third-party claimants.
• Compulsory insurance is meant to protect third parties, and insurance companies cannot evade their liability.

Directions

The Supreme Court directed that the insurance company must pay the compensation amount, along with interest, within three months from the date of the judgment.

Development of Law

The ratio decidendi of this case is that in cases where a bus is operating under a contract with a State Road Transport Corporation, the insurance company is primarily liable to pay compensation to the victims of accidents. This judgment clarifies the interpretation of the term “owner” under the Motor Vehicles Act, 1988, and sets aside the previous position of law established in Kailash Nath Kothari, which had held the Corporation solely liable. The court followed the ratio in Kulsum.

Conclusion

The Supreme Court’s judgment in U.P. State Road Transport Corporation vs. Rajendri Devi clarifies that in cases involving buses operating under contract with a State Road Transport Corporation, the insurance company is primarily liable for compensation. This decision ensures that victims of road accidents receive the compensation they are entitled to under the law, reinforcing the purpose of compulsory insurance and providing clarity on the responsibilities of various parties involved.