The Supreme Court of India, in a significant ruling on motor accident claims, has set aside a High Court order that allowed an insurance company to recover compensation from a vehicle owner after the driver’s license was found to be fake. The division bench of Justice K. Vinod Chandran and Justice N. V. Anjaria held that the insurer failed to prove a willful breach of policy conditions by the insured owner, Hind Samachar Ltd., at the time the vehicle was entrusted to the driver.
The Court overturned the “pay and recovery” direction, reinforcing the principle that an insurer must establish the owner’s lack of due diligence to avoid liability.
Background of the Case
The appeals arose from a motor accident that occurred on January 26, 1993, involving a truck owned by Hind Samachar Ltd. and a Matador van. The collision resulted in the death of nine persons and injuries to two others, all of whom were passengers in the Matador van.
The Motor Accident Claims Tribunal determined that there was composite negligence, apportioning liability at 75% for the truck driver and 25% for the Matador van driver. However, the High Court, in a subsequent appeal, granted National Insurance Company Ltd. (the truck’s insurer) the right to pay the compensation to the claimants and then recover the amount from the truck’s owner, Hind Samachar Ltd. The basis for this direction was the finding that the truck driver’s driving license was fake. The owner challenged this recovery right before the Supreme Court.
Arguments of the Parties
Mr. Gopal Shankaranarayan, Senior Counsel for the appellant (Hind Samachar Ltd.), argued that the High Court had relied on “surmises and conjectures” to conclude that the owner had colluded with the driver. He pointed out that a register produced from the District Transport Officer (DTO), Gurdaspur, was riddled with interpolations and could not be trusted. He further contended that the testimony of a clerk from the DTO’s office contradicted a certificate issued by the same authority which had validated the license.
Dr. Manish Singhvi, Senior Counsel for the respondent (National Insurance Company Ltd.), countered that both licenses produced in connection with the driver were proven to be fake. This, he argued, established negligence on the part of the owner in entrusting the vehicle. The insurer claimed that the owner’s representative, not the driver, producing the license before the Tribunal was a clear indication of collusion.
Court’s Analysis and Reasoning
The Supreme Court began its analysis by referencing established legal precedents. The bench cited National Insurance Co. Ltd. v. Swaran Singh, which held that while a fake license can be a valid defence for an insurer, “whether despite the same, the plea of default on the part of the owner has been established or not would be a question which will have to be determined in each case.”
The Court also relied on IFFCO Tokio General Insurance Co. Ltd. v. Geeta Devi, which deprecated the practice of insurers claiming a lack of due diligence without specific pleading or proof. The judgment noted: “the claim of the petitioner-insurance company that it has the right to recover the compensation from the owners of the vehicle, owing to a willful breach of the condition of the insurance policy, viz., to ensure that the vehicle was driven by a licenced driver, is without pleading and proof.”
Applying these principles, the Court found no merit in the insurer’s argument of collusion. The bench observed that the owner producing the driving license “only indicates that the owner had been diligent enough to procure the driving licence from the driver and produce it before the Tribunal, so as to validly raise a case for indemnification by the insurer.”
The Court found the evidence regarding the fake license to be unreliable, noting the certificate from the DTO, Gurdaspur, which indicated the license was validly issued and subsequently renewed. Crucially, the bench determined that the insurer had failed to prove a lack of due diligence at the time of the driver’s employment. The judgment states:
“There were no questions put to the witness, who was examined on behalf of the owner, as to the actual entrustment of the vehicle or whether R1 was employed regularly or temporarily and when such employment commenced, which are crucial insofar as proving or disproving due diligence by the owner at the time of engagement of the driver and the entrustment of the vehicle.”
The Court concluded that an owner is only expected to check the license produced by a prospective driver and “is not expected to verify from the licence issuing authority whether the licence is fake or not.” The failure of the driver to testify was deemed understandable, given the pending criminal prosecution against him.
Final Decision
Finding no reason to uphold the High Court’s order, the Supreme Court allowed the appeals. The bench stated, “We find absolutely no reason to sustain the order of the High Court, mulcting the liability on the owner of the truck.”
The Court set aside the part of the High Court’s order that granted recovery rights to the National Insurance Company Ltd. The other directions concerning the quantum of compensation awarded to the victims remained undisturbed.
