Holding

The insurer's liability is limited to Rs 50,000 with interest at 9% per annum, and the balance of the award must be paid by the insured.

Summary

The conductor of a bus owned by Mewat Transport Co. died in a 1984 accident, and his widow, children and parents claimed Rs 1.40 lakh compensation. The Motor Vehicles Tribunal awarded Rs 57,600 with 12% interest, limiting the insurer's liability to Rs 50,000. The Punjab and Haryana High Court enhanced the award to Rs 1.25 lakh but still held the insurer liable only for Rs 50,000, directing it to pay the full amount and recover the excess from the insured. On appeal, the Supreme Court examined whether a insurer can be compelled to pay beyond the policy limit and the appropriate rate of interest, emphasizing that precedents must be applied only after factual comparison. The Court held that the insurer's liability is capped at Rs 50,000 with interest at 9% per annum, and the balance must be paid by the insured, thereby modifying the High Court order. The appeal was partly allowed.

Issues considered

Whether an insurer can be directed to pay the entire compensation award despite the policy limit of Rs 50,000 under the Motor Vehicles Act.
What rate of interest is appropriate for the compensation award in the circumstances of the accident.
Whether prior Supreme Court decisions can be applied as binding precedent without a factual analysis of the present case.

Legislation cited

Motor Vehicles Act, 1988s. 147, s. 95(2)

Subjects

Motor Vehicles Actinsurance liabilitypolicy limitcompensation awardinterest rateprecedentstatutory interpretationthird party claim

Judgment

ORIENTAL INSURANCE CO. LTD. A
v.
SMT. RAJ KUMAR! AND ORS.

NOVEMBER 14, 2007
B
[DR. ARIJIT PASAYAT AND
LOKESHWAR SINGH PANTA, JJ.]

Motor Vehicles Act, 1988:
c
s.147-Award of compensation-High Court while passing
award of Rs.1.25 lacs, held that liability of insurer is limited to
Rs. 50, 000, however, insurer wouldpay entire amount to claimants and
recover amount in excess ofRs. 50, 000 from the insured-On appeal,
held, liability of insurer is limited to Rs.50,000-Balance of D
compensation be recovered from the insured.
Rate of interest-Award of compensation with interest@ 12%
p.a.-On appeal, held: /nterestfixed@9% p.a. considering the date
of accident.
E
Precedent
Reliance on the ·decision without looking into the factual
background ofthe case before.the court-Held: Not proper-Decfsion
is precedent on its own facts-Observations of courts are neither to
be read as Euclid's theorems nor as provisions ofthe statute-These F
observations to be read in the context in which they are stated-Judge$
interpret words of statutes-Their words not to be interpreted as
statutes-Judgment-interpretation of

The conductor of the bus lost his life in an accident His widow~
G
minor children and parents claimed compensatior. of Rs. 1.40 lacs~
The Tribunal awarded compensation of Rs.57,600/-with interest@
12% p.a. It however held that the liability ofinsurerwas limited tc;>
Rs.50,000/-. The claimants filed appeal before the High Court. The

1141 H
'r
\

1142 SUPREME COURT REPORTS [2007] 11 S.C.R.
{

A High Cou~ enhanced compensation to Rs.1.25 lacs and upheld the
view of tribunal as to liability of Tribunal. However, it was held that
the entire amount was to be paid by the insurer to the claimants and
insurer could recover the amount in excess of Rs.50,000/- from the .
owner and the driver of the vehicle.
B
In appeal to this Court, appellant contended that having held
that the liability of the insurance company was limited to Rs.
50,000/-, the High Court was not justified in directing payment of
the entire amount by it and to recov~r the differential amount and
that the rate of interest is big~.
c
Partly allowing the appeal, the Court
HELD: 1. It is true that in certain cases this Court has, after
looking into the fact situation, directed the insurance company to .1

make payment with liberty to recover the amount in excess of the
D liability from the insured. Those decisions were given on the facts _..(

situation of the cases concerned. [Para 10] .[1146-F]
New India Assurance Co. Ltd v. C.M Jaya and Ors., [2002] 2
SCC 278; and Oriental Insurance Co. Ltd v. Shakuntala Garg and f

E Ors., (Civil Appeal No. 104 of 2000, disposed of on 10.1.2003),
referred to.
2.1. Reliance on the decision without looking into the factual
background of the case before it is clearly impermissible. A decision
is a precedent on its own facts. Each case presents its own features.
F It is not everything said by a Judge while giving a judgment that I
constitutes a precedent. [Para 11] [1146-G] " "•
)o
Oriental Insurance Co. Ltd. v. Shakuntala Garg and Ors., (Civil ~

Appeal No.104 of2000, disposed of on 10.1.2003; and State ofOrissa
G v. Sudhansu Sekhar Misra and Ors., AIR (1968) SC 647, relied on.
2.2. A case is a precedent and bindiiig for what it explicitly j...

decides and no more. The words used by Judges in their judgments
.._
are not to be read as if they are words in Act of Parliament.
[Para 11) [1147-C,D]
H

r
ORIENTAL INSURANCE CO. LTD. v. RAJKUMARI 1143

Quinn v. Leathern, (1901) AC 495 (H.L.), referred to. A
2.3. Courts should not place reliance on decisions without
discussing as to how the factual situation fits in with the fact situation
of the decision on which reliance is placed. Observations of Courts
are neither to be read as Euclid's theorems nor as provisions of the B,
statute and that too taken out of their context. These observations
must be read in the context in which they appear to have been stated.
Judgments of Courts are not to be construed as statutes. To interpret
words, phrases and provisions of a statute, it may become necessary
for judges to embark into lengthy discussions but the discussion is C
meant to explain and not to define. Judges interpret statutes, they
do not interpret judgments. They interpret words of statutes; their
words are not to be interpreted as statutes.
[Para 12) [1147-E, F, G)
2.4. Circumstantial flexibility, one additional or different fact D
may make a world of difference between conclusions in two cases.
Disposal of cases by blindly placing reliance on a decision is not
prop~r. [Para 14) [1148-D]

London Graving Dock Co. Ltd. v. Horton, (1951) AC 7~7; Home
Office v. Dorset Yacht Co., (1970) 2 All ER 294; Megarry, Jin (1971) E
1WLR1062 and Herrington v. British Railways Board, (1972) 2 'WLR
537, referred to.
3. In the instant case the insured was a private limited company
doing transport business. There was no material placed before the p
High Court to show that the claimants would have any difficulty in
recovering the awarded amount from it. That being so, the High
Court's order is modified to the extent that the insurer shall pay an
amount of Rs.50,000/- with interest awarded to claimants. The
balance has to be paid by the insured. [Para 16] [1149-A, B] G
4. The liability of the insurance company is limited to Rs.
50,000/-with interest@9% p.a. from the date of the application.
The rate is being fixed considering the date of accident.
[Para 17] (1149-C]
H
1144 SUPREME COURT REPORTS [2007] 11 S.C.R.

A CI\TlL APPELLATE JURISDICTION : Civil Appeal No. 5209 of ~
2007.
From the final Judgment and Order datt'.d 13.7.2005 of the High
Court of Punjab and Haryana at Chandigarh in First Appeal froni.Qrder
No. 1029 of 1986. _
B
M.K. Dua and Kishore Rawat .
. - for the Appellant
Dinesh Chander Yadav and Dr. Kailash Chand for the Respondents.
. -' . ~

The Judgment of the Court_ was delivered by .
c DR. ARIJIT PASAYAT, J. 1. Leave granted..
2. ch3.ltenge in this appeaI.i~ to the order pa5se<l by a ieam~ci singie
Judge ofthe Punjab ~d Haryaria High Court. By the impugnedjudgment,
the High Court held. that though the liability of the appellant (hereinafter
D referred to as the"insurer') was limited to Rs.50;000/- yet it was to first
pay the amount awarded to the claimants and recover amount in ex~ess ~
of Rs.50,000/- from the owner ~d driver of the offending vehicle.
2. Factual position in a nutshell is as follows:
E One-Karan Singl;i; conductor of the bus no.DEP-3514 losthis life
in an accident which.took plaGe on 14.7.1984. The bus belonged to
Mis Mewat Transport Company Private Limited (hereinafter referred t~
as the 'insured'). The bus was driven by deceased Karan Singh and it
dashed in a tanker no.HRG-2852. The impact was so intense and· severe
F that several persons sitting in the bus died, while many others sustained
injuries. The widow, minor children and parents of aforesaid Karan Singh
lodged claim petition Glaiming compensation of Rs.l,40;000/-.. The
Tribunal took several claim petitions together and in respect of the claim
under consideration awarded compensation ofRs.57,600/- along with
o 12% interest p.a, from the date of institution of the claim petition. It was,
.
however, held_that liability of the insurer was limited to Rs.50,000/-.
.
3. The claimants filed appeal before the Punjab and Haryana High
Court. By the impugned order the High Court enhanced claim of
compensation to Rs.1,25;200/-. It was held, as was done by the Tribµnal,
H
ORIENTALINSURANCECO.LTD. v. RAJKUMARI 1145
[PASAYAT,J.]

that the liability of the insurer was limited to Rs.50,000/- in tenns of the A
insurance policy. However, it was held that the entire amotmt was to be
paid by the insurer to the claimants and it was entitled to recover the
ambtint in excess ofRs.50,000/- from the owner and the driver of the
vehicle.
B
4. In support of the appeal, learned counsel for the appellant
submitted that having held that the liability of the insurance company was
limited to Rs.50;000/-, the High Court was not justified in directing
payment of the entire amount by it and to recover the differential amount.
5. There is no appearance on behalf of the respondents. c
6. It would be appropriate t9 take a note of what was held by the
Constitution Berich of this Court in New India Assurance Co. Ltd v.
CM Jaya and Ors., [2002] 2 SCC 278. In that case it was held, inter
alia, as follows: D
"In the circumstances, we hold that the liability of the
appellant, insurance-company is limited to Rs.50,000/-, as held
by the Tribunal. In the view we have taken, it is unnecessary to
go into the question relating to either maintaiiiability of cross-
objections before the High Cot.lrt against the appellant alone or E
as to the enhancement of compensation when the owner and
driver have not filed appeal against the impugned judgment."
7. The questions that were considered by the Constitution Bench
are as follows:
F
"The question involved in these appeals is whether in a case
of insurance policy not taking any higher liability by accepting a
higher premium, in case of payment of compensation to a third
party, the insurer would be liable t~ the extent limited under
Section 95(2) or the insurer would be liable to pay the entire G
amount and he may ultimately recover from the insured. On this
question, there appears to be some apparent conflict in the two
three-Judge Bench decision of this Court - (1) New India
Assurance Co. Ltd v. Shanti Bai, [1995] 2 SCC 539 and (2)
Amrit Lal Soodv. Kaushalya Devi Thapar [1998] 3 SCC 744. H
1146 SUPREME COURT REPORTS [2007] 11 S.C.R.

A 2. In the latter decision, unfortunately the decision in New Jncfia
Assurance case (supra) has not been noticed though reference has
been made to the decision of this Court in National Insurance
Co. Ltd. V. Jugal Kishore, [1998] 1 sec 626, which was relied
upon in the earlier three-Judge Bench Judgment. In view of the
B apparent conflict in these two three-Judge Bench decisions, we
think it appropriate that the records of this case may be placed
before my Lord, the Chief Justice of India to constitute a larger
Bench for resolving the conflict. We accordingly so direct. The
record may now be placed before the Hon'ble the Chief Justice
c of India"
8. It would be evident from the conclusions of this Court the liability
of the insurance company would in the instant case be limited to quantum
which was to be indemnified in terms of the policy. The Tribunal and the
High Court have held accordingly.
D
9. In Oriental Insurance Co. Ltd. v. Shakuntala Garg and Ors.,
(Civil Appeal No. 104of2000, disposed of on 10.1.2003), it was held
as follows:
"Learned counsel for the appellant at this stage expressed an
E apprehension that by virtue of the terms of the Award, the appellant
may be required to pay the entire amount and recover it from the
owner. In the light of the modification ofthe impugned Award, such
question does not arise."

F 10. It is true that in certain cases this Court has, after looking into
the fact situation, directed the insurance company to make payment with
liberty to recover the amount in excess of the liability from the insured.
Those decisions were given on the facts situation of the cases concerned.
11. Reliance on the decision without looking into the factual
G background of the case before it is clearly impermissible. A decision is a
precedent on its own facts. Each case presents its own features. It is not
everything said by a Judge while giving a judgment that constitutes a
precedent. The only thing in a Judge's decision binding a party is the
principle upon which the case is decided and for this reason it is important
H
' ORIENTALINSURANCECO.LTD.v. RAJKUMARI 1147
[PASAYAT,J.]
to analyse a decision and isolate from it the ratio decidendi. According A
to the well-settled theory of precedents, every decision contains three
basic postulates - (i) findings of material facts, direct and inferential. An
inferential finding of facts is the inference which the Judge draws from
the direct, or perceptible facts; (ii) statements of the principles of law
~ applicable to the legal problems disclosed by the facts; and (iii) judgment B
based on the combined effect of the above. A decision is an authority
for what it actually decides. What is of the essence in a decision is its
ratio and not every observation found therein nor what logically flows
from the various observations made in the judgment. The enunciation of
the reason or principle on which a question before a Court has been C
decided is alone binding as a precedent. (See: State of Orissa v.
Sudhansu Sekhar A1isra and Ors., AIR (1968) SC 647 and Union of
India and Ors. V. Dhanwanti Devi and Ors., [1996] 6 sec 44). A
case is a precedent and binding for what it explicitly decides and no more.
The words used by Judges in their judgments are not to be read as if D
they are words in Act of Parliament. In Quinn v. Leathern, (1901) AC
495 (H.L.), Earl ofHalsbury LC observed that every judgment must be
read as applicable to the particular facts proved or assumed to be proved,
since the generality of the expressions which are found there are not
intended to be exposition of the whole law but governed and qualified E
by the particular facts of tl1e case in which such expressions are found
and a case is only an autl1ority for what it actually decides.
12. Courts should not place reliance on decisions without discussing
as to how the factual situation fits in with the fact situation of the decision
on which reliance is placed. Observations of Courts are neither to be F
read as Euclid's theorems nor as provisions of the statute and that too
-taken out of their context. These observations must be read in tl1e context
in which they appear to have been stated. Judgments of Courts are not
to be construed as statutes. To interpret words, phrases and provisions
of a statute, it may become necessary for judges to embark into lengthy G
discussions but the discussion is meant to explain and not to define. Judges
interpret statutes, they do not interpret judgments. They interpret words
of statutes; their words are not to be interpreted as statutes. In London
Graving Dock Co. Ltd v. Horton, (1951) AC 737 at p.761, Lord Mac
Dermot observed: H
A "Tu~ w.~~~r ~~9t, of co.ll!:s~,. ~e s~We~, m~r~ly. by. treat_i,i;ig
\he ipsi.ssima vertra of Wines, J as thou~ they' were paq <?fan Act
of Parl.iament ~d applying then.des ofinterf>reta~ion. apprgpri~~e
th~reto. This is n~t to ~et;rac~ from. \he gr~~ weigl).t ~o ~~ giyen ~9
the language actually used by that most distingltjshedjudge."
, • .. _ r• , • ~ . , ' . • - ' I '\. I ..i.. • \ 'J. ll • .0 1 ... .. -1 • i "'"~ ~ L

B
13. In Home Office v. Dorset Yacht Co., (1970) 2 AH ER 294
Lord Reid said, "Lord Atkin' s speech.... .is not to be treated as if it was
a stattite d~ficition. It will require qualificatio~ in ~ew ci~cwpstances.;'
Megarry, J in(i971) 1WLR1062 observed: "One must not, of course,
construe even a reserved judgment ofR~~ell L~i as ifit·~~re M.Act~f
C Parlia:i:ne~t." ~d, i~ He~rington v. Brtti~h.Rail~ays 13oa~d, (1972) '2
WLR 537 Lord Morris said: ' .. '. . ' · .

"There is always peril in treating the w9rds <?fa speech 9r
judgment as though they are words in a legislative ~na~tmen~ ~~.
D. it is to be remembered that judicial utterances made in the setting
<?fthe facts or'a particular ca~e." . . ... ' . . . ..

1,4. Cifc~tial fle,gbility, one additional or 9ifferent fact rpay make
a world_9f differen~ benyeen c;onclU$ions in two,<;ases. Dispo~, of cases
bx bJ!!:19ly pl~~ing reliap.~e. on a dec;ision is. not pr<;>per.
E
15. The following words of Lord De~g in the matter of applyipg
precedents have bec~me locus classic~s: . ... . . .. n • ' • • • . •
.~ \,._ ' . \ ' ' ...
':E~~!i, ca~~ dyp~~4s. on its. 9wn facts ~d a close similarity
~et\y~eq. 9pe case and another is llQt enol!gh ~caµse e~en; a. single
F sjgriifj.£m.1t, ~etail max alter the entji:e as~t, ip. deciding sµ9h cases,
9p.e shRuld avoid· the temptation to. decide cases (as said- by
<:;qrdozo) by matching the colour of <:me.case againsJ th~ col9ur
of another. To•' decide..
~···"
therefore, on.which side.oftne.line
. .,,,_'
a case ..,.~,~.~-'·' ~

falls, the,broad resemblance to another.caseis not-at all decisive."
'.ltl • • ~· ... , • I~ ~.-·.~· :ao.·~.._ ... , . . . ~;. "''-•' "K't

*** *** ***
"Precedent s!iould be fol~qwed:only so,far.~.it·tp.i:!f~ t4~:pa~
of justice, b~t you must cut the.dead·w9od <l!l~:trim off tr~ sJcie,
branches else.you \\jll find. yours~lt:l9st:in th!~~!tt.s;,~n~; ~~ch~s.
H
ORIENTALINSURANCECO.LTD. v. RAJKUMARI 1149
[PASAYAT,J.]
My plea is to keep the path to justice clear of obstructions which A
could impede it."
16. In the instant case the insured was a private limited company
doing transport business. There was no material placed before the High
Court to show that the claimants would have any difficulty in recovering B
the awarded amount from it. That being so, the High Court's order is
modified to the extent that the insurer shall pay an amount of Rs.
50,000/-with interest awarded to claimants. The balance has to be paid
by the insured.
17. Another point urged before this Court in support of the appeal C
was that the rate of interest is high. The liability of the insurance company
is limited to Rs.50,000/- with interest@ 9% p.a. from the date of the
application. The rate is being fixed considering the date of accident. The
insured shall forthwith make payment of the balance amount with interest
to the claimants and in any event not later than 3 months from the date of D
this order.
18. The appeal is allowed to the aforesaid extent with no order as
to costs.
D.G. Appeal partly allowed. E