PEPSU ROAD TRANSPORT CORPORATIONversusNATIONAL INSURANCE COMPANY,

                        [2013] 9 S.C.R. 266


A         PEPSU ROAD TRANSPORT CORPORATION
                                  v.
                NATIONAL INSURANCE COMPANY
                 (Civil Appeal No. 8276 of 2009)
                         AUGUST 26, 2013
B
      [GYAN SUDHA MISRA AND KURIAN JOSEPH, JJ.]

        MOTOR VEHICLES ACT, 1988:

c      s. 149 (2) (a) (ii) - Plea of fake driving licence raised by
  insurer-Held: Onus is on the insurer to establish the defence
  - As far as owner of vehicle is concerned, when he hires a
  driver, he has to check whether the driver has a valid driving
  licence - Thereafter he has to satisfy himself as to the
0 competence of the driver - If that is done, it can be said that
  the owner had taken reasonable care in employing a person
  who is qualified and competent to drive the vehicle - He is
  not expected to verify the genuineness of driving licence with
  the licensing authority- In the instant case, the driver had been
  put to a driving test and had also been imparted training by
E the appellant employer - In view of the evidence of licensing
  authority, it cannot be absolutely held that the licence to the
  driver had not been issued by the said authority and that the
  licence was fake - Insurer is liable to indemnify the insured.

F      The instant appeal filed by the insured arose out of
  the order of the Motor Accidents Claims Tribunal whereby
  it awarded the dependants of a fatal accident victim a
  compensation of Rs. 11,03,404/- and absolved the insurer
  of its liability holding that the licence issued to the driver
G was found to b~ fake.

        Allowing the appeal, the Court

        HELD: 1.1 In a claim for compensation, it is certainly

H                                266
                 ..


    PEPSU ROAD TRANSPO~T CORPORATION v.                 267
         NATIONAL INSURANCE COMPANY
open to the insurer uls 149(2)(a)(ii) of the Motor Vehicles    A
Act, 1988 to take a defence that the driver of the vehicle
involved in the accident was not duly licensed. Once
such a defence is taken, the onus is on the insurer. As
far as the owner of the vehicle is concerned, when he
hires a driver, he has to check whether the driver has a       8
valid driving licence. Thereafter he has to satisfy himself
as to the competence of the driver. If satisfied in that
regard also, it can be said that the owner had taken
reasonable care in employing a person who is qualified
and competent to drive the vehicle. The owner cannot be        C
expected to go beyond that, to the extent of verifying the
genuineness of the driving licence with the licensing
authority before hiring the services of the driver. [para 8]
[274-C-F]

    Un,it(3d India Insurance Company Limited vs. Lehru and     D
Other;{2003 (2) SCR 495 = (2003) 3 SCC 338; National
Insurance Company Limited vs. Swaran Singh and Others
                      =
2004 (1) SCR 180 2004 (3) SCC 297, National Insurance
Company Limited vs. Laxmi Narain Dhut 2007 (3) SCR 579
= (2007) 3 SCC 700-relied on.                                  E

     1.2 In the instant case, the driver, in the process of
employment, had been put to a driving test and he had
been imparted training also by the employer. The
accident took place after six years of his service. In such
                                                               F
circumstances, it cannot be said that the insured is at
fault in having employed a person whose licence has
been proved to be fake by the insurance company before
the Tribunal. Further, on scanning the evidence of the
licensing authority before the Tribunal, it cannot also be     G
absolutely held that the licence to the driver had not been
issued by the said authority and that the licence was fake.
The respondent - insurance company is liable to
indemnify the appellant. [para 9-10] [275-8-E]

                                                               H
    268       SUPREME COURT REPORTS                 [2013] 9 S.C.R.


A                         Case Law Reference:
          2003 (2) SCR 495          relied on              para 5
          2004 (1) SCR 180          relied on              para 6
          2007 (3) SCR 579          relied on              para 7
B
        CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    8276 of 2009.

      From the Judgment and Order dated 17.09.2008 of the
C High Court of Punjab & Haryana at Chandigarh in First Appeal
  from Order No. 1477 of 2008.

          K.K. Mohan for the Appellant.

          S.L. Gupta, Vikash Chandra, Ram Ashray, lnder Mohan
o Singh, Kamlesh Vaswani (for Shalu Sharma) for the
    Respondent.

          The Judgment of the Court was delivered by

        KURIAN, J. 1. Breach of conditions under Section
E 149(2)(a) of the Motor Vehicles Act, 1988 absolves the insurer
  of its liability to the insured. Section 149(2)(a)(ii) deals with the
  conditions regarding driving licence. In case the vehicle at the
  time of accident is driven by a person who is not duly licensed
  or by a person who has been disqualified from holding or
F obtaining a drltiing licence during the period of disqualification,
  the insurer is not liable for the compensation. In the instant case,
  we are called upon to deal with a situation where the driver
  allegedly possessing only a fake driving licence.

G      2. Widow and two minor sons of late Gurjinder Singh Modi
  are claimants before the Motor Accidents Claims Tribunal,
  Chandigarh in M.A.C.T. No. 63/481 filed in the year 2002. The
  allegation was that Gurjinder Singh Modi died out of a motor
  accident on 04.10.2001 on account of the negligent driving of
H bus no. PB-11-K-8512 of the Pepsu Road Transport
      PEPSU ROAD TRANSPORT CORPORATION v.                       269
      NATIONAL INSURANCE COMPANY [KURIAN, J.]

 Corporation (for short, 'PRTC'), Patiala, the appellant herein.        A
 Rs.30,00,000/- was claimed as compensation. Negligence was
 proved. The Tribunal awarded Rs.11,03,404/- as.compensation.
 However, the insurance company was absolved of its liability
 since the licence issued to the driver was found to be fake. The
 insurance company took the Local Commissioner to licensing             B
 authority, Darjeeling, West-Bengal and, on verification of the
 available records, it was reported that no such licence as
 possessed by the driver has been issued by the said licensing
 Authority at Darjeeling. Thus, aggrieved, the owner of the
 vehicle, viz., PRTC, Patiala has come up in appeal.                    c
        3. It is the contention of the appellant that they had
  appointed the third respondent - Nirmal Singh as driver with
  PRTC in 1994, he was given proper training from the driving
  school at Patiala and, thus, having taken reasonable steps in
  verifying the driving licence and, thereafter, having trained the     D
  driver by the employer hims.elf, it cannot be said that the
  insurance company is not liable. There is no breach of any
  conditions by the insured. In other words, it is contended that
  even if the licence is fake, the owner having taken all
  reasonable steps, the insurer is liable. The other contention on      E
  merits is that the insurer had not established before the Tribunal
  that the licence issued to Nirmal Singh was fake. In this context,
  our reference has been invited to Annexure-2-evidence of the
· licensing authority before the Tribunal. It is stated that as per
 .the available office records, no driving licence was issued to         F
  Nirmal Singh on 12.06.1985 with no.12385 of 1985. Licence
  numbers of 1985 as per record start from 22579 of 1985.
  Photocopy of the register maintained for issuing the licences
  was marked as R-1. However, it was also stated that: -
                                                                        G
      " ... It can be possible that other licence register pertaining
      to year 1985 are not available today as it might be
      misplaced during the shifting of our office ... "

      Still further, it was stated:
                                                                        ·H
    270        SUPREME COURT REPORTS                   [2013] 9 S.C.R.


A         " ... It is possible that the registers which are misplaced
          might contain the name of Nirmal Singh."

         4. Though the appellant is entitled to succeed on the ground
    that the insurer had not proved beyond doubt that driver Nirmal
    Singh did not possess a valid driving licence, we shall also
8
    advert to the legal position regarding the liability of the insurance
    company when the driver of the offending vehicle possessed
    a fake driving licence.

         5. In United India Insurance Company Limited vs. Lehru
C and Others1, a two-Judge Bench of this Court has taken the
  view that the insurance company cannot be permitted to avoid
  its liability only on the ground that the person driving the vehicle
  at the time of accident was not duly licensed. It was further held
  that the wilful breach of the conditions of the policy should be
D established. Still further it was held that it was not expected of
  the employer to verify the genuineness of a driving licence from
  the issuing authority at the time of employment. The employer
  needs to only test the capacity of the driver and if after such
  test, he has been appointed, there cannot be any liability on
E the employer. The situation would be different when the
  employer was told that the driving licence of its employee is
  fake or false and yet the employer not taking appropriate action
  to get the same duly verified from the issuing authority. We may
  extract the relevant paragraphs from the judgment:
F               "18. Now let us consider Section 149(2). Reliance
          has been placed on Section 149(2)(a)(ii). As seen inorder
          to avoid liability under this provision it must be shown that
          there is a "breach". As held in Skandia and Sohan Lal
          Passi cases the breach must be on part of the insured.
G         We are in full agreement with that. To hold otherwise would
          lead to absurd results. Just to take an example, suppose
          a vehicle is stolen. Whilst it is being driven by the thief there
          is an accident. The thief is caught and it is ascertained that

H 1. (2003) 3 sec 338.
 PEPSU ROAD TRANSPORT CORPORATION v.                         271
 NATIONAL INSURANCE COMPANY [KURIAN, J.]
 he had no licence. Can the Insurance Company disown                 A.
 liability? The answer has to be an emphatic "No". To hold
 otherwise would be to negate the very purpose of
 compulsory insurance. The injured or relatives of the person
 killed in the accident may find that the decree obtained by
 them is only a paper decree as the owner is a man of                B
 straw. The owner himself would be an innocent sufferer. rt
 is for this reason that the Legislature, in its wisdom, has
 made insurance, at least third party insurance, compulsory.
 The aim and purpose being that an insurance company
 would be available to pay. The business of the company              c
 is insurance. In all businesses there is an element of risk.
 All persons carrying on business must take risks
 associated with that business. Thus it is equitable that the
 business which is run for making profits also bears the risk
 associated with it. At the same time innocent parties must
                                                                     0
 not be made to suffer or loss. These provisions meet these
 requirements. We are thus in agreement with what is laid
 down in aforementioned cases viz that in order to avoid
 liability it is not sufficient to show that the person driving
 at the time of accident was not duly licensed. The
 insurance company must establish that the breach was on
                                                                     E
 the part of the insured."

        "20. When an owner is hiring a driver he will therefore
  have to check whether the driver has a driving licence. If
  the driver produces a driving licence which on the face of         F
  it looks genuine, the owner is not expected to find out
  whether the licence has in fact been issued by a competent
  authority or not. The owner would then take the test of the
  driver. If he finds that the driver is competent to drive the
  vehicle, he will hire the driver. We find it rather strange that   G
  insurance companies expect owners to make enquiries
  with RTOs, which are spread all over the country, whether
  the driving licence shown to them is valid or not. Thus
  where the owner has satisfied himself that the driver has
. a licence and is driving competently there would be no             H
    272        SUPREME COURT REPORTS                   [2013] 9 S.C.R.       '


A         breach of Section 149(2)(a)(ii). The Insurance Company ...,.
          would not then be absolved of liability. If it ultimately turns · ·-
          out that the licence was fake, the insurance company would
          continue to remain liable unless they prove that the owner/
          insured was aware or had noticed that the licence was
B         fake and still permitted that person to drive. More
          importantly, even in such a case the insurance company
          would remain liable to the innocent third party, but it may
          be able to recover from the insured. This is the law which
          has been laid down in Skandia, Sohan Lal Passi and                   (
c         Kamla cases. We are in full agreement with the views
          expressed therein and see no reason to take a different
          view."

       6. The matter was subsequently considered by a three-
  Judge Bench of this Court in National Insurance Company
D Limited vs. Swaran Singh and Others . The said Bench was of
  the view that in case the insured did not take reasonable and
  adequate care and caution to verify the genuineness or
  otherwise of the licence, the liability would still be open-ended
  and will have to be determined on the basis of facts of each
E case. The relevant discussions are available at paragraphs 92,
  99, 100 and 101, which are extracted below:

                 "92. It may be true as has been contended on behalf
          of the petitioner that a fake or forged licence is as good
F         as no licence but the question herein, as noticed
          hereinbefore, is whether the insurer must prove that the
          owner was guilty of the wilful breach of the conditions of
          the insurance policy or the contract of insurance. In Lehru
          case, the matter has been considered in some detail. We
G         are in general agreement with the approach of the Bench
          but we intend to point out that the observations made
          therein must be understood to have been made in the light
          of the requirements of the law in terms whereof the insurer
          is to establish wilful breach on the part of the insured and
H 2.   c2004) 3 sec 297.
                PEPSU ROAD TRANSPORT CORPORATION v.                       273
                NATIONAL INSURANCE COMPANY [KURIAN, J.]
               not for the purpose of its disentitlement from raising any         A
               defence or for the owners to be absolved from any liability
               whatsoever."

                     "99. So far as the purported conflict in the judgments
               of Kamla and Lehru is concerned, we may wish to point              B
               out that the defence to the effect that the licence held by
               the person driving the vehicle was a fake one, would be
               available to the insurance companies, but 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."
                                                                                  c

..                   "100. This Court, however, in Lehru must not be read
               to mean that an owner of a vehicle can under no
               circumstances have any duty to make any enquiry in this
               respect. The same, however, would again be a question              D
               which would arise for consideration in each individual
               case."

                      "101. The submission of Mr. Salve that in Lehru case,
               this Court has, for all intent and purport, taken away the         E
               right of insurer to raise a defence that the licence is fake
               does not appear to be correct. Such defence can certainly
               be raised but it will be for the insurer to prove that the
               insured did not take adequate care and caution to verify
               the genuineness or otherwise of the licence held by the
                                                                                  F
               driver..

              7. Swaran Singh's case (supra) was subsequently
          considered by a two-Judge Bench of this Court in National
          Insurance Company Limited vs. Laxmi Narain Dhut3. It was
          explained that:                                                         G

                "Mere absence, fake or invalid driving licence or
                disqualification of the driver for driving at the relevant time
                are not in themselves defences available to the insurer
          3.   c2001) 3 sec 100.                                                  H
    274        SUPREME COURT REPORTS                 (2013] 9 S.C.R.
                                                                           '

A         against either the insured or the third parties. To avoid its
          liability towards the insured the insurer has to prove that
          the insured was guilty of negligence and failed to exercise
          reasonable care in the matter of fulfilling the condition of
          the policy regarding use of vehicles by duly licensed driver
B         or one who was not disqualified to drive at the relevant
          time ... "

         8. In a claim for compensation, it is certainly open to the
    insurer under Section 149(2)(a)(ii) to take a defence that the
C   driver of the vehicle involved in the accident was not duly
    licensed. Once such a defence is taken, the onus is on the
    insurer. But even after it is proved that the licence possessed
    by the driver was a fake one, whether there is liability on the
    insurer is the moot question. As far as the owner of the vehicle
    is concerned, when he hires a driver, he has to check whether
D   the driver has a valid driving licence. Thereafter he has to satisfy
    himself as to the competence of the driver. If satisfied in that
    regard also, it can be said that the owner had taken
    reasonable care in employing a person who is qualified and
    competent to drive the vehicle. The owner cannot be expected
E   to go beyond that, to the extent of verifying the genuineness of
    the driving licence with the licensing authority before hiring the
    services of the driver. However, the situation would be different
    if at the time of insurance of the vehicle or thereafter the
    insurance company requires the owner of the vehicle to have
F   the licence duly verified from the licensing authority or if the
    attention of the owner of the vehicle is otherwise invited to the
    allegation that the licence issued to the driver employed by him
    is a fake one and yet the owner does not take appropriate
    action for verification of the matter regarding the genuineness
G   of the licence from the licensing authority. That is what is
    explained in Swaran Singh's case (supra). If despite such
    information with the owner that the licence possessed by his
    driver is fake, no action is taken by the insured for appropriate
    verification, then the insured will be at fault and, in such
H
       PEPSU ROAD TRANSPORT CORPORATION v.                   275
       NATIONAL INSURANCE COMPANY [KURIAN, J.]

circumstances, the insurance company is not liable for the           A
compensation.

     9. On facts, in the instant case, the appellant employer had
employed the third respondent Nirmal Singh as driver in 1994.
In the process of employment, he had been put to a driving test
                                                                     8
and he had been imparted training also. The accident took
place only after six years of his service in PRTC as driver. In
such circumstances, it cannot be said that the insured is at fault
in having employed a person whose licence has been proved
to be fake by the insurance company before the Tribunal. As
we have already noted above, on scanning the evidence of the         C
licensing authority before the Tribunal, it cannot also be
absolutely held that the licence to the driver had not been issued
by the said authority and that the licence was fake. Though the
appellant had also taken a contention that the compensation
is on the higher side, no serious attempt has been made and          D
according to us justifiably, to canvas that position.

     10. In the above circumstances, the appeal is allowed. The
fourth respondent - insurance company is liable to indemnify
the appellant and, hence, there can be no recovery of the            E
compensation already paid to the claimants.

       11. There is no order as to costs.

R.P.                                            Appeal allowed.