Supreme Court clarifies liability of a dealer in motor accident claims: Vaibhav Jain vs. Hindustan Motors Pvt. Ltd. (2024) INSC 652 (3 September 2024)

Introduction

Date of the Judgment: 3 September 2024

Citation: 2024 INSC 652

Judges: J.B. Pardiwala, J. and Manoj Misra, J.

When a vehicle causes an accident, who is liable for compensation? The Supreme Court of India recently addressed this question in a case involving a car accident during a test drive. The core issue was whether a car dealer could be held liable for compensation when the vehicle was still owned by the manufacturer and driven by the manufacturer’s employees. This judgment clarifies the responsibilities of dealers in such situations. The bench consisted of Justices J.B. Pardiwala and Manoj Misra, with the majority opinion authored by Justice Manoj Misra.

Case Background

A claim petition for death compensation was filed before the Motor Accident Claims Tribunal by the legal heirs of Pranay Kumar Goswami (the deceased), who died in a car accident. The petition was filed under Section 166 of the Motor Vehicles Act, 1988, against Shubhashish Pal (the driver), Hindustan Motors Pvt. Ltd. (the manufacturer), and Vaibhav Jain (the dealer). The deceased was a Territory Manager for Hindustan Motors, and the driver was a Service Engineer for the same company. The accident occurred when the vehicle was taken for a test drive from the dealership of Vaibhav Jain.

Timeline

Course of Proceedings

The Motor Accident Claims Tribunal held both Hindustan Motors and Vaibhav Motors jointly and severally liable for compensation. The Tribunal reasoned that although Hindustan Motors owned the vehicle, Vaibhav Motors had possession as the dealer. Aggrieved by the quantum of compensation, the claimants appealed to the High Court of Chhattisgarh at Bilaspur. The dealer also appealed, contesting their liability. The High Court enhanced the compensation and dismissed the dealer’s appeal, upholding the joint and several liability.

Legal Framework

The case primarily revolves around Section 2(30) of the Motor Vehicles Act, 1988, which defines “owner”. According to this section, the owner is the person in whose name the vehicle is registered. It also includes the person in possession of the vehicle under a hire-purchase, lease, or hypothecation agreement. Section 166 of the Motor Vehicles Act, 1988, specifies who can file a compensation claim. Section 168(1) of the Motor Vehicles Act, 1988, specifies who is liable to pay compensation.

Relevant legal provisions include:

• Section 2(30) of the Motor Vehicles Act, 1988:
  “’owner’ means the 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 166 of the Motor Vehicles Act, 1988:
  This section specifies who can file a compensation claim.
• Section 168(1) of the Motor Vehicles Act, 1988:
  This section specifies that the Claims Tribunal shall specify the amount which shall be paid by the insurer or owner or driver of the vehicle involved in the accident.

Arguments

Appellant’s (Vaibhav Jain – the dealer) Submissions:

• The appellant argued that on the date of the accident, the owner of the vehicle was Hindustan Motors, in whose name the vehicle was temporarily registered. There was no evidence of the vehicle being transferred to the appellant.
• The driver and the deceased were employees of Hindustan Motors, and they took the vehicle for a test drive. Therefore, the vehicle was under the control and possession of Hindustan Motors.
• The appellant contended that the dealership agreement was not a hire-purchase, lease, or hypothecation agreement, and therefore, the dealer could not be considered the owner under Section 2(30) of the Motor Vehicles Act, 1988.
• The appellant submitted that Clauses 3(b) and 4 of the Dealership Agreement were related to defects in the vehicle and not to compensation claims arising from accidents.
• The appellant argued that the concept of a possessory owner under the Motor Vehicles Act, 1939, was no longer applicable under the Motor Vehicles Act, 1988.
• The appellant stated that the judgment in Rajasthan State Road Transport Corporation vs. Kailash Nath Kothari & Ors. [1997] 7 SCC 481 was based on the old Act and not applicable to the present case.
• The appellant concluded that since they were neither the owner nor the driver of the vehicle, they could not be held liable for compensation.

Respondent’s (Hindustan Motors) Submissions:

• Hindustan Motors argued that they had sold the vehicle to the appellant through a challan-cum-invoice, and the car was delivered to the appellant on a principal-to-principal basis. Therefore, the appellant was the owner on the date of the accident. They relied on M/s. Tata Motors Limited vs. Antonio Paulo Vaz and Anr. [2021] 18 SCC 545.
• Hindustan Motors contended that even if their employees were involved, once the vehicle was sold and delivered to the dealer, the dealer alone would be liable for compensation. They cited clause 3(b) of the Dealership Agreement, which absolved them of liability for defects after dispatch/delivery.
• Hindustan Motors argued that the dealer, being the possessory owner, was liable based on the decision in Rajasthan State Road Transport Corporation (supra).
• Hindustan Motors submitted that even if they did not file an appeal, the court could absolve them of liability under Order 41 Rule 33 of the Civil Procedure Code, 1908, relying on Bihar Supply Syndicate vs. Asiatic Navigation & Ors. [1993] 2 SCC 639 and Sri Chandre Prabhuji Jain Temple & Ors. vs. Harikrishna & Anr. [1973] 2 SCC 665.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether, as a mere dealer of M/s Hindustan Motors, the appellant could be considered the owner of the vehicle and, as such, liable jointly and severally with M/s Hindustan Motors to pay the compensation?
2. Whether clauses 3(b) and 4 of the Dealership Agreement absolved M/s Hindustan Motors of its liability to pay compensation as an owner?
3. Whether M/s Hindustan Motors, even without preferring an appeal against the award of the Tribunal, could question its liability under the award by relying on the provisions of Order 41 Rule 33 of the CPC?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

• Godavari Finance Company v. Degala Satyanarayanamma & Ors. [2008] 5 SCC 107: This case clarified that the financier is not the owner of a vehicle under a hire-purchase agreement; the person in possession is the owner.
• Rajasthan State Road Transport Corporation vs. Kailash Nath Kothari & Ors. [1997] 7 SCC 481: This case discussed the concept of vicarious liability and held that the person with actual control over the vehicle could be considered the owner.
• National Insurance Co. Ltd. v. Deepa Devi & Ors. [2008] 1 SCC 414: This case held that when a vehicle is requisitioned for state duty, the owner loses control, and the state assumes liability.
• Ramesh Mehta v. Sanwal Chand Singhvi & Ors. [2004] 5 SCC 409: This case established that the definition of a term in an interpretation clause may not apply if the context requires otherwise.
• M/s. Tata Motors Limited vs. Antonio Paulo Vaz and Anr. [2021] 18 SCC 545: This case was relied upon by the respondent to argue that the sale was complete.
• Bihar Supply Syndicate vs. Asiatic Navigation & Ors. [1993] 2 SCC 639: This case was relied upon by the respondent to argue that the court can absolve liability under Order 41 Rule 33 of CPC.
• Sri Chandre Prabhuji Jain Temple & Ors. vs. Harikrishna & Anr. [1973] 2 SCC 665: This case was also relied upon by the respondent to argue that the court can absolve liability under Order 41 Rule 33 of CPC.
• Banarasi & Ors. V. Ram Phal [2003] 9 SCC 606: This case dealt with the scope of Order 41 Rule 22 and Rule 33 of the CPC.
• Section 2(30) of the Motor Vehicles Act, 1988: Definition of “owner.”
• Section 166 of the Motor Vehicles Act, 1988: Persons who may file a compensation claim.
• Section 168(1) of the Motor Vehicles Act, 1988: Award of the Claims Tribunal.
• Order 41 Rule 33 of the Civil Procedure Code, 1908: Power of the Appellate Court.

Judgment

How each authority was viewed by the Court:

• The court followed the principle laid down in Godavari Finance Company v. Degala Satyanarayanamma & Ors. [2008] 5 SCC 107* that the person in possession of the vehicle under a hire-purchase agreement is considered the owner.
• The court distinguished the case of Rajasthan State Road Transport Corporation vs. Kailash Nath Kothari & Ors. [1997] 7 SCC 481* as it was decided under the old Motor Vehicles Act, 1939.
• The court referred to National Insurance Co. Ltd. v. Deepa Devi & Ors. [2008] 1 SCC 414* to emphasize that the definition of “owner” is not rigid and can change based on the context.
• The court relied on Ramesh Mehta v. Sanwal Chand Singhvi & Ors. [2004] 5 SCC 409* to highlight that the definition of a term in an interpretation clause may not apply if the context requires otherwise.
• The court distinguished the facts of the case from M/s. Tata Motors Limited vs. Antonio Paulo Vaz and Anr. [2021] 18 SCC 545*.
• The court discussed Bihar Supply Syndicate vs. Asiatic Navigation & Ors. [1993] 2 SCC 639* and Sri Chandre Prabhuji Jain Temple & Ors. vs. Harikrishna & Anr. [1973] 2 SCC 665* in the context of the power of the court under Order 41 Rule 33 of CPC.
• The court relied on Banarasi & Ors. V. Ram Phal [2003] 9 SCC 606* to explain the scope of Order 41 Rule 22 and Rule 33 of the CPC.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The court emphasized that the vehicle was under the control and command of Hindustan Motors at the time of the accident as it was being driven by their employee.
• The court noted that the dealership agreement clauses did not absolve the manufacturer of tortious liability arising from the use of the vehicle.
• The court highlighted that the manufacturer had not appealed against the finding that it was the owner, and therefore, could not challenge this finding using Order 41 Rule 33 of the CPC.

Fact:Law Ratio:

The court’s reasoning was based on the factual finding that the vehicle was under the control of the manufacturer and the legal interpretation of the dealership agreement and relevant sections of the Motor Vehicles Act, 1988.

The court rejected the argument that the dealer was liable, emphasizing that the vehicle was under the control and command of the manufacturer at the time of the accident. The court stated, “In these circumstances, we can safely conclude that at the time of accident the vehicle was not only under the ownership of M/s. Hindustan Motors but also under its control and command through its employees.” The court further clarified that the clauses in the dealership agreement did not absolve the manufacturer of its liability, stating, “The use of the words “and the company will have no other liability and all liabilities other than one under warranty as aforesaid shall be to the account of the Dealer”, in absence of specific exclusion of tortious liability arising from use of such vehicle, cannot absolve the owner of the motor vehicle of its liability under the Motor Vehicles Act and shift it on to the dealer…” The court also noted that the manufacturer had not challenged the finding of ownership, observing, “By not challenging the same, through an appeal or cross-objection, M/s Hindustan Motors has allowed it to attain finality. Therefore, in our view, M/s Hindustan Motors cannot be allowed to question the same now.”

Key Takeaways

✓ A vehicle dealer is not liable for compensation in a motor accident claim if the vehicle is still under the ownership and control of the manufacturer at the time of the accident.

✓ Dealership agreements that limit liability for defects do not automatically absolve manufacturers of tortious liability arising from the use of the vehicle.

✓ If a party is held liable and does not appeal against that finding, they cannot later challenge it using Order 41 Rule 33 of the CPC.

✓ The definition of “owner” under Section 2(30) of the Motor Vehicles Act, 1988, is not exhaustive and can be interpreted based on the context and facts of each case.

Directions

The Supreme Court directed that if the dealer had already paid or was to pay any part of the compensation, they were entitled to recover the same from Hindustan Motors along with interest at 6% p.a. from the date of payment until recovery.

Specific Amendments Analysis

No specific amendments were discussed in this judgment.

Development of Law

The ratio decidendi of this case is that a vehicle dealer cannot be held liable for compensation in a motor accident claim if the vehicle is still under the ownership and control of the manufacturer. This clarifies the liability of dealers in such circumstances and reinforces the principle that the person with effective control over the vehicle is primarily responsible. This judgment also clarifies that the definition of “owner” under Section 2(30) of the Motor Vehicles Act, 1988, is not rigid and can be interpreted based on the context.

Conclusion

In conclusion, the Supreme Court held that the vehicle dealer, Vaibhav Jain, was not liable for compensation in the motor accident case. The court determined that the vehicle was under the ownership and control of Hindustan Motors at the time of the accident. The court clarified that the dealership agreement did not absolve the manufacturer of its liability. This judgment provides clarity on the liability of vehicle dealers in motor accident claims and emphasizes the importance of control and ownership in determining liability.