The Supreme Court of India, in a significant ruling on motor insurance liability, has held that an insurance company cannot evade its responsibility to indemnify the owner for passengers carried in a ‘utility vehicle’ when the vehicle holds a ‘contract carriage’ permit and its package policy specifies a seating capacity. The Court set aside a High Court order that had directed the insurer to ‘pay and recover’ compensation from the vehicle owner.
The judgment was delivered by a bench comprising Justice K. Vinod Chandran and Justice N. V. Anjaria in the case of Shyam Lal v. Shriram General Insurance Co. Ltd. and Others. The central legal question was whether the ‘Limitation as to Use’ clause in a package insurance policy could restrict passenger coverage in a utility vehicle registered with a specific seating capacity and a contract carriage permit.
Case Background
The case originated from an accident involving a utility vehicle owned by the appellant, Shyam Lal, which led to five separate claim petitions before the Motor Accidents Claims Tribunal (Tribunal). The Tribunal found the driver of the utility vehicle to be rash and negligent and held that the vehicle was covered by a valid package policy issued by Shriram General Insurance Co. Ltd. Consequently, the Tribunal directed the insurance company to pay the compensation awarded.
The insurance company appealed this decision to the High Court. The High Court partially allowed the appeal, issuing a ‘pay and recover’ order. It concluded that the utility vehicle was not permitted to carry passengers due to a specific restriction in the policy’s “Limitation as to Use” clause, which, according to the insurer, only covered employees under the Workmen’s Compensation Act, 1923. Aggrieved by this order, the vehicle owner, Shyam Lal, filed the present appeal before the Supreme Court.
Arguments of the Parties
The appellant-owner argued that the vehicle was a ‘Utility Van’ with a Certificate of Registration and a contract carriage permit, both of which clearly indicated a seating capacity of 5 persons (4+1 including the driver). The package policy also reflected this capacity. It was contended that the policy’s ‘limitation as to use’ clause concerning the carriage of goods applied only to a designated ‘goods vehicle’ and not to a ‘utility vehicle’, which is designed to carry both passengers and goods. Thus, there was no ground for a ‘pay and recover’ order.
The respondent, Shriram General Insurance Company, countered that the deceased passengers—which included a student, a catering employee, a painter, and a postal department employee—could not be considered validly covered under the policy’s limitations. They argued that even if the passengers were owners of goods, the five claim petitions indicated overloading beyond the permitted capacity of four passengers.
Court’s Analysis and Findings
The Supreme Court meticulously examined the vehicle’s official documents. The bench noted that the Certificate of Registration classified the vehicle as a “Utility Van” with a seating capacity of 5, and the permit was for a ‘contract carriage’. The Court drew a clear distinction between a ‘contract carriage’ as defined under Section 2(7) of the Motor Vehicles Act, 1988, which is for carrying passengers for hire or reward, and a ‘goods carriage’ under Section 2(14), used solely for carrying goods.
The Court observed that the package policy itself described the vehicle as a “Bolero Camper Utility DC”. Based on these facts, the judgment stated, “The utility vehicle obviously is for carriage of passengers and goods; the passengers not being necessarily the owners of the goods as seen from the seating capacity of 4+1 including the driver specified also in the insurance policy.”
Crucially, the Court found that the ‘limitation as to use’ clause did not apply because the vehicle was not insured as a goods vehicle. The policy was issued after the insurer had perused the registration certificate and permit. This was further substantiated by the testimony of the insurance company’s Branch Manager, who admitted during cross-examination that the policy was issued based on the vehicle being registered as a “Utility Van” and that such vehicles have separate portions for goods and passengers. The Court concluded, “The Insurance Company in the above circumstance, cannot wriggle out of its liability to indemnify the owner.”
Addressing the insurer’s argument of overloading, the Supreme Court referred to the Tribunal’s findings and the evidence of an eyewitness (PW2). The eyewitness testified to seeing only four passengers in the vehicle just before the accident. The Court noted that the evidence established that “in addition to the passengers carried in the vehicle, some pedestrians were also dragged down by the vehicle when the accident occurred.” This explained the five claim petitions without proving a breach of the seating capacity.
Final Decision
The Supreme Court allowed the appeals, setting aside the judgment of the High Court. The bench restored the order of the Tribunal, making the insurance company fully liable to pay the compensation without any right to recover from the owner.
The Court, however, made a minor modification to one of the awards (MACT Case No. 134 of 2014), directing the Tribunal to apply a 1/3rd deduction for personal expenses from the computed loss of income before disbursing the amount, to ensure the award of ‘just compensation’.
