ORIENTAL INSURANCE CO. LTD.versusCHERUVAKKARA NAFEESSU AND ORS.

A                       ORIENTAL INSURANCE CO. LTD.
                                           v.
                    CHERUVAKKARA NAFEESSU AND ORS.

                                DECEMBER 14, 2000

B                      [K.T. THOMAS AND R.P. SETHI, JJ.]


           Motor Vehicles Act, 1939--Section 95(1)(b) and 96--Accident causing
    death of a person by a vehicle-Legal heirs of the deceased filed claim
C   petition before the Claims Tribunal for Rs. 2, 00, 000--Policy limited liability
    of the appellate/insurer to Rs. 50,000--Claims Tribunal passed an award for
    Rs. 1,94,150 making the appellant solely liable-First appeal dismissed by
    the High Court-On appeal-Held, as per the terms of policy, total extent of
    liability was Rs. 50, 000 only-The appellant was liable to indemnifY the
    insured against all sums including claimants s costs and expenses which
D   insured becomes liable to pay-The insured is liable to repay to the appellant-
    company all sums paid by the appellant-company which the company would
    not have been liable to pay but for the condition of liability relating to third
    party.

          In an accident caused by an auto-rickshaw which, was insured by the
E   appellant company, one person died. His legal heirs, the respondents claimed
    Rs. 2,00,000 as compensation by filing a claim petition before the Motor
    Accident Claims Tribunal. In its reply, the appellant company specifically
    stated that under the policy of insurance their liability was limited to
    Rs. 50,000 only. However, the Tribunal awarded compensation of Rs. 1,94,150
F   holding the appellant company to be solely liable. Appeal tiled by the company
    against the said award was dismissed by the High Court. Hence this appeal.

          The appellant contended that under the terms of the insurance policy
    in the instant case, the company was not liable to pay more than Rs. 50,000,
    being the limit of its liability. The excess amount of the award was to be paid
G   by the insured for which the Tribunal was not competent to issue directions
    against the appellant-company. The insured contended that as per the avoidance
    clause in the insurance policy, the appellant was liable to indemnify the whole
    extent of liability towards the claim notwithstanding the limit of liability of
    the insurance.

         Allowing the appeal, the Court
H                                        670
       ORIENTAL INSURANCE CO LTD." CHERUVAKKARA NAFEESSU [SETHI, J.)           671

       HELD: I. A conjoint reading of all the terms of the policy of insurance        A
executed in this case indicates that the total extent of liability of the insurance
policy is Rs. 50,000 but the company is liable to indemnify the insured against
all sums including claimant's costs and expenses and nothing in the policy
affects the right of any person indemnified by the policy or any other person
to recover an amount under or by virtue of the provisions of Section 96 of the
Motor Vehicles Act. However, the insured is liable to repay to the company            B
all sums paid by the company which the company would not have been liable
to pay but for the condition of liability relating to third party. (673-E, F(

     New Asiatic Insurance Co. ltd. v. Pessumal Dhanamal Aswani & Ors.,
AIR (1964) SC 1736 and Amrit Lal Sood & Anr.v. Smt. Kaushalya Devi Thapar             C
& Ors., AIR (1998) SC 1433, referred to.

      T Shantharam v. State of Karnataka & Ors., (1995) 2 SCC 539 and
National Insurance Co. ltd. New Delhi v. Nand Kishore & Ors., (1998( 1 SCC
626, distinguished.

       2. Despite holding the liability under the policy limited to the extent of     D
Rs. 50,000, the Claims Tribunal and the High Court were not unjustified in
directing the appellant-company to pay whole of the awarded amount to the
claimants on the basis of the contractual obligations contained in clauses
relating to the liability of the third parties and avoidance clause. However, the
Claims Tribunal and the High Court were not justified in rejecting the right          E
of the appellant-company to recover from the insured the excess amount paid
in execution and discharge of the award of the Tribunal. [676-8)

       CIVIL APPELLATE JURISDICTION : Civil appeal No. 7359 of2000.

      From the Judgment and Order dated 8.11.99 of the Kerala High Court
in M.F.A. No. 1043of1991-D.                                                           F
       Kishore Rawat and M.K. Dua for the Appellant.

       S.K. Bhattacharya for the Respondent Nos. 8-9.
       Rajiv Mehta, M. Jayasree and A.K. Sengupta, for the Respondent Nos.            G
2-7.

       The Judgment of the Court was delivered by:

       SETHI, J. Leave granted.

       What is the extent of liability of an insurance company towards the            H
    672                      SUPREME COL'RT REPORTS (2000] SUPP. 5 S.C.R.

A third party as per Section 95(l)(b) of the Motor Vehicles Act, 1939 (hereinafter
    called "the Act") and what are its rights in case of payment of an amount in
    excess of the limits of the liability under the insurance policy vis-a-vis the
    insured?, are the questions to be determined in this appeal. It has been argued
    on behalf of the insurance company that under the terms of the insurance
    policy in the instant case, the company was not liable to pay more than
B   Rs. 50,000 being the limit of its liability. The excess amount of the award was
    to be paid by the insured for which the Tribunal was not competent to issue
    directions against the appellant-company. On the other hand counsel for the
    insured has submitted that as per avoidance clause in the insurance company,
    the appellant-company was liable to indemnify the whole extent of liability
C   towards the claim notwithstanding the limit of liability of the insurance.

            In this case the claim petition was filed by the legal heirs of C. Abdul
    Shukkoor, who died in a road accident on 6. 7.1988. The accident was caused
    by an auto-rickshaw bearing Registration NO.KRN 1859 which was insured
    with the appellant-company. The respondents claimed Rs. 2 lakhs as
D   compensation. The appellant-company filed their reply specifically stating
    therein that their liability was limited to Rs. 50,000 under the policy of insurance.
    The Claims Tribunal passed an award of Rs. 1,94, 150 and fastened the entire
    liability on the appellant-company. The appeal filed against the order of the
    Claims Tribunal was dismissed vide the judgment impugned in this appeal.

E         Admittedly, the insurance policy in this case is of a date prior to the
    coming into force of the new Motor Vehicles Act on 1.7.1989. The liability of
    the insurance company to satisfy judgments against persons insured in respect
    of the third party risk is covered under Section 96 of the Act, sub-section (I)
    of which provides:
F
            "96. Duty of insurers to satisfy judgments against persons insured in
            respect of third party risks (I) If, after a certificate of insurance has
            been issued under sub-section (4) of Section 95 in favour of the
            person by whom a policy has been effected, judgment in respect of
            any such liability as is required to be covered by a policy under
G           clause (b) of sub-section {I) of Section 95 (being a liability covered
            by the terms of the policy) is obtained against any person insured by
            the policy, then, notwithstanding that the insurer may be entitled to
            avoid or cancel or may have avoided or cancelled the policy, the
            insurer shall, subject to the provisions of this section, pay to the
H           person entitled to the benefit of the decree any sum not exceeding the
      ORIENTAi. INSURANCE CO. Ll'D. " CHERUVAKKARA NAFEESSU [SETHI, J]         673
         sum assured payable thereunder, as if he were the judgment-debtor,           A
         in respect of the liability, together with any amount payable in respect
         of costs and any sum payable in respect of interest on that sum by
         virtue of any enactment relating to interest on judgments."

     Under the insurance policy the limit of company's liability in respect of
any one claim or series of claims arising out of one event is Rs. 50,000 only.        B
However, the avoidance clause of the policy provides:

         "Nothing in this policy or the endorsement hereon shall affect the
         right of any person indemnified by this policy or any other person to
         recover an amount under or by virtue of the provisions of the Motor
         Vehicles Act, 1939, Section 96.                                              C
         BUT the insured shall repay to the company all sums paid by the
         company which the company would not have been liable to pay but
         for the said provisions."

        Section II of the policy deals with "liability of third party" and provides   D
 that the company will indemnify the insured against all sums including claimants
 costs and expenses which insured become legally liable to pay in respect of
 the death of or bodily injury to any person caused by or arising out of the
 use of the motor vehicle or damage to the property caused by such use. A
 conjoint reading of all the terms of the policy of insurance executed in this        E
case indicate that the total extent of liability of the insurance policy is
Rs. 50,000 but the company is liable to indemnify the insured against all sums
including claimant's costs and expenses which insured becomes liable to pay
and nothing in the policy affects the right of any person indemnified by the
policy or any other person to recover an amount under or by virtue of the
provisions of Section 96 of the Act. However, the insured is liable to repay          F
to the company all sums paid by the company which the company would not
have been liable to pay but for the condition of liability relating to third party.

      Dealing with such a situation this Court in New Asiatic Insurance Co.
ltd v. Pessumal Dhanamal Aswani & Ors., AIR (I 964) SC 1736 held:
                                                                                      G
        "The Act contemplates the possibility of the policy of insurance
        undertaking liability to third parties providing such a contract between
        the insurer and the insured, that is, the person who effected the
        policy, as would make the company entitled to recover the whole or
        part of the amount it has paid to the third party from the insured. The
                                                                                      H
    674                     SUPREME COURT REPORTS [2000] SUPP. 5 S.C.R.

A           insurer thus acts as security for the third party with respect to its
            realisin.g damages for the injuries suffered, but vis-a-vis the insured,
            the company does not undertake that liability or undertake it to a
            limited extent. It is in view of such a possibility that various conditions
            are laid down in the policy. Such conditions, however, are effective
            only between the insured and the company, and have to be ignored
B           when considering the liability of the company to the third parties.
            This is mentioned prominently in the policy itself and is mentioned
            under the heading 'avoidance of certain terms and rights of recovery',
            as well as in the form of "An Important Notice", in the Schedule to
            the policy. The avoidance clause says that nothing in the policy or
c           any endorsement thereon shall affect the right of any person
            indemnified by the policy or any other person to recover an amount
            under or by virtue of the provisions of the Act. It also provides that
            the insured will repay to the company all sums paid by it which the
            company would not have been liable to pay but for the said provisions
            of the Act. The 'Important Notice' mentions that any payment made·
D           by the company by reason of wider terms appearing in the certificate
            in order to comply with the Act is recoverable from the iAsured, and
            refers to the avoidance clause.

           Thus the contract between the insured and the company may not
E          provide for all the liabilities which the company has to undertake vis-
           a-vis the third parties, in view of the provisions of the Act. We are
           of the opinion that once the company had undertaken liability to third
           parties incurred by the persons specified in the policy, the third
           parties' right to recover any amount under or by virtue of the
           provisions of the Act is not affected by any condition in the policy.
F          Considering this aspect of the terms of the policy, it is reasonable to
           conclude that proviso (a) of para 3 of Section II is a mere condition
           affecting the rights of the insured who effected the policy and the
           persons to whom the cover of the policy was extended by the company,
           and does not come in the way of third parties' claim against the
           company on account of its claim against a person specified in para
G
           3 as one to whom cover of the policy was extended."

          Relying upon the aforesaid judgment and referring to the avoidance
    clause, a three-Judge Bench of this Court in Amril Lal Sood and another v.
    Smt. Kaushalaya Devi Thapar & Ors., AIR (1998) SC 1433 held:
H
      ORIENTAL INSlJRANCE CO. LTD. v. CHERUVAKKARA NAFEESSU [SETHI, J.]   675
        "In the policy in the present case also, there is a clause under the     A
        heading:

        "AVOIDANCE OF CERTAIN TERMS AND RIGHTS OF RECOVERY -
        which reads thus: Nothing in this policy or any endorsement hereon
        shall affect the right of any person indemnified by this policy or any
        other person to recover an amount under or by virtue of the provisions   B
        of the Motor Vehicles Act, 1939, Section 96. But the Insured.shall pay
        to the company all sums paid by the company which the company
        would not have been liable to pay but for the said provisions."

        The above clause does not enable the insurance company to resist
        or avoid the claim made by the claimant. The clause will arise for       C
        consideration only in a dispute between the insurer and the insured.
        The question whether under the said clause the insurer can claim
        repayment from the insured is left open. The circumstances that the
        owner of the vehicle did not file an appeal against the judgment of
        single Judge of the High Court under the Letters Patent may also be      D
        relevant in the event of a claim by the insurance company against the
        insured for repayment of the amount. We are not concerned with that
        question here."

        The reliance of the learned counsel for the appellant on T. Shantharam
 v. State of Karnataka & Ors., [ 1995] 2 SCC 539 and National Insurance Co. E
 ltd., New Delhi v. Jugal Kishore & Ors., [ 1988] I SCC 626 is of no· help to
 him inasmuch as in those cases the effect of judgment in Amrit Lal Sood's
 case has not been considered. In T. Shantharam's case the court was dealing
with the effect of a comprehensive policy vis-a-vis the liability of the insurer
 in respect of third party risk on the basis of the estimated value of the vehicle
and found that the limit of liability with regard to third party risk does not F
become unlimited or higher than the statutory liability only on account of
entering into a comprehensive policy. It was pointed out that the comprehensive
policy only entitles the owner to claim reimbursement of the entire amount of
loss or damage suffered upto the estimated value of the vehicle which did not
mean the limit of liability with regard to third party risk becoming unlimited G
or higher than the statutory liability. In the case of National Insurance Co.
ltd v. Jugal Kishore & Ors.. (supra) this Court observed that the liability
under the policy could not exceed the statutory liability under Section 95 of
the Act only on the ground that the insured had undertaken Comprehensive
insurance of the vehicle. The payment of higher premium on that score,
however, did not mean that the limit of liability with regard to third party risk H
    676                    SUPREME COURT REPORTS [2000) SUPP. 5 S.C.R.

A became unlimited or higher than the statutory liability fixed under sub-section
    (2) of Section 95 of the Act.

            In the facts and circumstances of this case we find that despite holding
    the liability under the policy limited to the extent of Rs. 50,000 the Claims
    Tribunal and the High Court were not unjustified in directing the appellant-
B   company to pay the whole of the awarded amount to the claimants on the
    basis of the contractual obligations contained in clauses relating to the
    liability of the third parties and avoidance clause. However, the Claims Tribunal
    and the High Court were not justified in rejecting the right of the appellant-
    company to recover from the insured the excess amount paid in execution and
C   discharge of the award of the Tribunal.

           The appeal is accordingly allowed holding that the appellant-company
    is liable to pay the entire award amount to the claimants. Upon making such
    payment the appellant can recover the excess amount from the insured by
    executing this award against the insured to the extent of such excess as per
D   Section 174 of the Motor Vehicles Act, 1988. No costs.

    RC.I<.                                                         Appeal allowed.