Holding

An insurer is liable to pay third‑party compensation unless it can prove that the insured himself breached the policy by knowingly allowing an unlicensed driver.

Summary

The Supreme Court examined an appeal by United India Insurance Company Ltd, which sought to avoid liability for a motor accident on the ground that the driver’s licence was allegedly fake. The accident involved a vehicle driven by Janu, who presented a licence that appeared genuine; the insurer attempted to prove a different licence issued to another person in a later year. The Motor Accident Claims Tribunal and the Punjab & Haryana High Court had held the insurer liable, stating that liability could only be avoided if the insured had knowingly permitted an unlicensed driver. The Court reiterated earlier decisions that under Section 149(2)(a)(ii) of the Motor Vehicles Act, 1988 (identical to Section 96(2)(b)(ii) of the 1939 Act), the insurer can escape liability only by proving a breach by the insured, not merely the falsity of the licence. Consequently, the insurer remained liable to pay compensation to the third‑party claimants, though it may later recover from the insured. The appeal was dismissed with costs.

Issues considered

The insurer’s right to avoid liability under Section 149(2)(a)(ii) of the Motor Vehicles Act, 1988 when the driver’s licence is later found to be fake.
Whether the insurer must prove that the insured knowingly permitted an unlicensed driver to invoke the exemption clause.

Legislation cited

Code of Civil Procedure, 1908s. 13
Insurance Act, 1938
Motor Vehicles Act, 1939s. 96(2)(b)(ii)
Motor Vehicles Act, 1988s. 149(2), s. 149(2)(a)(ii), s. 149(4), s. 149(5), s. 149(6), s. 149(7)

Subjects

Motor Vehicles Actinsurance liabilitythird‑party compensationfake driving licencebreach of conditioninsurer defenceSection 149Section 96compulsory insurancerecovery from insured

Judgment

UNITED INDIA INSURANCE COMPANY LTD. A
v.
LEHRU AND ORS.

FEBRUARY 28, 2003

[S.N. VARIAVA AND B.N. AGRAWAL, JJ.] B

Motor Vehicles Act, 1988:

Ss. I 49(2)(a)(ii) and (7)-Car accident-Compensation-Insurance
Company Ql'Oiding its liability on the ground that licence of the driver was C
fake-Held, where che owner has satisfied himself that the driver has a licence
which on the face of it looks genuine, and the driver is competent to drive 'the
vehicle', there would be no breach ofs.149(2)(a)(ii)-The Insurance Company
would not then be absolved of liabilil)r-lf it ultimately turn~ out that the
licence was fake, the Insurance Company would continue to remain liable D
unless they prove that the owner/insured was aware or had noticed that the
licence was 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

Skandia Insurance Co. Ltd v. Kokilaben Chandravadan and Ors., (1987) E
2 SCC 654; Sohan Lal Passi v. P. Sesh Reddy and Ors., (1996] 5 SCC 21
and New India Assurance Co. Shim/av. Kam/a and Ors., (2001) 4 SCC:342
relied on.

British India General Insurance Co. Ltd v. Captain Itbar Singh and
Ors., [1960) 1 SCR 168, referred to. F
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1959 of 2003 .
..-
From the Judgment and Order dated 5.12.2000 of the Punjab and
Haryana High Court in F.A.0. No. 2828 of 2000.
G
Vishnu Mehra and B.K. Satija for the Appellant.

S.K. Bansal, Mrs. Savitri Bansal, Dharam Bir Raj Vohra, Gagan Gupta
and S.S. Khanduja for the Respondents.

495 H
)..,
r

496 SUPREME COURT REPORTS (2003] 2 S.C.R.

A Tile following Order of the Court was delivered :

Leave granted

Heard parties.

B This appeal is against a judgment of the High Court dated 5.12.2000.

By this appeal, the Insurance Company seeks to avoid its liability on
the ground that the licence of the driver of the car was a fake license. As is
. indicated hereafter .the question whether an· Insurance Company can avoid
liability to a third party who is involved in the accident is no longer res
C integra. It is fully covered by decisions of this Court. We find that in spite
of the point being fully covered, in a large number of matters the Insurance
Companies are still seeking to get out of fiability to third parties on the
ground that the licence was fake. We have noticed that many matters are still
being brought to this Court on this point. It is therefore necessary to again
D reiterate the legal position. In this case the Appellants have not even been
able to prove that the licence was fake. Yet they have deprived the claimants
of use of the money for all these years by filing unnecessary appeals.

In this case, the driver, at time of accident was one Janu s/o Kallu.
During trial he filed, before the Motor Accident Claims Tribunal his original
E licence. The licence bore number 9195/MTR/96P dated 15th May, 1989. The
Appellant - Insurance Company sought to prove that a licence bearing No.
5l 95/MTR/96P had been i~sued in the name of one Kalpana Gupta and not
in the name of the Driver. The Insurance Company get produced records of
the concerned RTO for the year 1996. They made no efforts to get produced
concerned records of 1989. To be noted that the year 1989 comes before
F 1996. Therefore even presuming there was some confusion whether the number
of the licence was 5195 or 9195, still the records of 1989 were requin:d to
be produced. It is clear that the licence issued on 15th May, 1989 had nothing
to do with the licence, if any, issued to Kalpana Gupta in 1996. If anything
the licence issued in 1996 could have been a renewal of a fake licence. The
-
G Motor Accident Claims Tribunal did not accept that the licence was fake. It
held that, even if the licence was fake, the law was that Insurance Company
was liable to pay the compensation as they had failed to prove that the
insured had deliberately committed any breach of any condition.

The Appellants then filed an Appeal before the High Court The High
H Court dismissed the Appeal without going into the question whether the
UNITED INDIA INSURANCE COMPANY LTD. v. LEHRU 497
licence was fake or not. The High Court held that even if the licence was A
fake, the settled law was that the Insurance Company had to first pay to the
claimants and they could then recover from the own·er, if in law they were
entitled to do so. One would have thought that now that two Courts had
pointed out the settled law the Insurance Company would honour its
commitment. Alas better sense bas still not prevailed.
B
As stated earlier, in this case the Appellants have not proved that the
licence was fake. For that reason itself they should have paid up the amount
awarded to the claimant. But the Appellant - Insurance Company wants this
Court to reconsider its earlier decisions and hold that the Insurance Company
is absolved of its liability to pay to the claimant if it proves that the licence C
was fake.

We have heard the parties Mr. Vishnu Mehra, learned counsel for the
Appellants has attempted, with great fervor, to convince us that the settled
law is not correct. We remain unconvinced.
D
In the case of British India General Insurance Co. Ltd v. Captain ltbar
Singh and Ors., reported in [1960) SCR 168, the question was whether an
Insurance Compan~; can take up defences other than those enumerated in
Section 96(2) of the Motor Vehicle Act, 1939. The provisions of Section 96
including Section 96( 6) were considered. It was held that the Insurance
Company got a right to defend or file an appeal only by virtue of statute and E
therefore the right could only be exercised subject to the restriction laid down
by the statute. It was held that an Insurance Company could only defend on
grounds enumerated in Section 96(2) of the Motor Vehicles Act, 1939 and
on to other ground. In answer to a submission that not permitting Insurance
Companies to take up all available defences would be unfair, it was held as F
follows:

"We are furthermore not convinced that the statute causes any hardship.
First, the insurer has the right, provided he has reserved it by the
policy, to defend the action in the name of the assured and ifhe does
so, all defences open to the assured can then be urged by him and G
there is no other defence that he claims to be entitled to urge. He can
thus avoid all hardship, if any, by providing for a right to defend the
action in the name of the assured and this he has full liberty to do.
Secondly, if he has been made to pay something which on the contract

-- of the policy he was not bound to pay, he can under the proviso to
sub-s(J) and under subs-s (4) recover it from the assured. It was said H
498 SUPREME COURT REPORTS [2003] 2 S.C.R.

A that the assured might be a man of straw and the insurer might not
be able to recover anything from him. But the answer to that is that
it is the insurer's bad luc~. In such circumstances the injured person
also would not have been able to recover the damages suffered by
him from the assured, the person causing the injuries. The loss had
to fall on some .one and the statute has thought fit that it shall be
B borne by the insurer. That also st;ems to us to be equitable for the loss
falls on t_he insurer in the course of his carrying on his business, a
business out of which he makes profit, and he could so arrange his
business that in the net result he would never suffer a loss. On the
other hand, if the loss fell" on the injured person, it would be due to
C no fault of his, it would have been a loss suffered by him arising out
of an incident in the happening of which he had no hand al all."
(emphasis supplied)

Thus as far back as in 1960 a three Judge Bench of this Court has held,
on an interpretation of Section 96, including sub-section (6) thereof, that if
D the Insurance Company was made to pay soinething which, under the policy,
they were not bound to pay, they can recover from the assured. It has also
been held that it was equitable that if a loss has to fall on some one, then it
should fall on the insurer, as the insurer, as the insurer is carrying on this
business. It must also be mentioned that Section 149 of the Motor Vehicles
E Act, 1988 is identical, in all material particulars, to Section 96 of the 1939
Act. .

In the case of Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan
qnd Ors., reported in [1987] 2 SCC 654, the object and purpose of getting
motor vehicles insured was considered. The question was whether the insurance
F company could avoid lia~ility because the accident was caused by the cleaner
of the truck who had no licence. The insurance company relied upon Section
96(2)(b )(ii) which reads as under:

"(2) No sum shall be payable by an insurer under sub-section (I) in
respect of any judgment unless before or after the commencement of
G the proceedings in which the judgment is given the insur~r had notice
through the court of the bringing of the proceedings or .in respect of
any judgment so long as execution is stayed thereon pending an
appeal, and an insurer to whom notice of the bringing of any such
proceeding is so given shall be entitled to be made party thereto and
to defend the action on any of the following grounds, namely:
H
UNITED INDIA INSURANCE COMPANY LTD. v. LEHRU 499
(a) A
(b) that there has been a breach of a specified condition of the policy,
being one of the following conditions, namely:
(i)

(a) to (d) .............. . B
(ii) a condition excluding driving by a named person of persons or
by any person who is not duly licensed, or by any person who
has been disqualified for holding or obtaining a driving licence
during the period of disqualification: or"

To be noted that Section 96(2)(b)(ii) is identical to Section 149(2)(a)(ii) C
on which reliance is placed in this case. The argument that the insurance
company could avoid liability was negatived for the following reasons:

"12. The defence built on tbe exclusion clause cannot succeed for
three reasons, viz.:
D
I. On a true interpretation of the relevant clause which interpretation
is at peace with the conscience of Section 96, the condition
excluding driving by a person not duly licensed is not absolute
and the promisor is absolved once it is shown tbat he has done
everything in his power to keep, honour and fulfil the promise E
and he himself is not guilty of a deliberate breach.
2. Even if it is treated as an absolute promise, there is substantial
compliance therewith upon an express or implied mandate being
L" given to tbe licensed driver not to allow the vehicle to be left
unattended so that it happens to be driven by an unlicensed F
driver. ·
3. The exclusion clause has to be 'read down' in order that it is not
at war with the 'main purpose' of the provisions enacted for the
protection of victims of accidents so that the promisor is
exculpated when he does everything in his power to keep the
promise. G
13. In order to derive the intention of the legislature in the course of
interpretation of the relevant provisions tIJere can scarcely be a· better
test than that of probing into the motive and philosophy of the relevant
provisions keeping in mind the goals to be achieved by enacting the
same. Ordinarily it is not the concern of the legislature whether the H
500 SUPREME COURT REPORTS (2003] 2 S.C.R.

A owner of the vehicle insures his vehicle or not. If the vehicle is not
insured any legal liability arising on account of third pany risk will
have to be borne by the owner of the vehicle. Why then has the
legislature insisted on a person using a motor vehicle in a public
place to insure against third party risk by enacting Section 94? Surely
the obligation has not been imposed in order to promote the business
B of the insurers engaged in the business of automobile insurance. The
provision has been inserted in order to protect the members of the
community travelling in vehicles or using the roads from the risk
attendant upon the user of motor vehicles on the roads. The law may
provide for compensation to victims of the accidents who sustain
c injuries in the course of an automobile acci~ent a compensation to
the dependants of the victims in the case of a fatal accident. However,
such protection would remain a protection on paper unless there is a
guarantee tnat the compensation awarded by the courts would be
recoverable from the persons held liable for the consequences of the
accident. A court can only pass an award or a decree It cannot ensure
D that such an award or decree results in the amount awarded being
actually recovered, from the person held liable who may not have the
resources. The exercise undertaken by the law courts would then be
an exercise in futility. And the outcome of the legal proceedings
which by the very nature of things involve the time cost and money
E cost invested from the scarce resources of the community would
make a mockery of the injured victims, or the dependants of the
deceased victim of the accident, who themselves are obliged to incur
not inconsiderable expenditure of time, money and energy in litigation.
To overcome this ugly situation the legislature has made it obligatory
that no motor vehicle shall be used unless a third party insurance is
F in force. To use the vehicle without the requisite third party insurance
being in force is a penal offence. The legislature was alSo faced with
another problem. The insurance policy might provide for liability
walled in by conditions which may be specified in the contract of
policy. In order to make the protection real, the legislature has also
G provided that the judgment obtained shall not be defeated by the .
incorporation of exclusion clauses other than those authorised by·
Section 96 and by providing that except and save to the extent
permitted by Section 96 it will be the obligation of the insurance
company to satisfy the judgment obtained against the persons insured
against third party risk (vi de Section 96). In other words, the legislature
H has insisted and made it incumbent on the user of a motor vehicle to
UNITED INDIA INSURANCE COMPANY LTD. v. LEHRU 501
be armed with an insurance policy covering third party risks which A
is in conformity with the provisions enacted by the legislature. It is
so provided in order to ensure that the injured victims of automobile
accidents or the dependants of the victims of fatal accidents are really
compensated in terms of the money and not in terms of promise.
Such a benign provision enacted by the legislature having regard to B
the fact that in the modern age the use of motor vehicles
notwithst~nding the attendant hazards, has become an inescapable
fact of life, has to be interpreted in a meaningful manner which
serves rather thus defeats the purpose of the legislation. The provision
has therefore to be interpreted in the twilight of the aforesaid
perspective. c
14. Section 96(2)(b)(ii) extends immunity to the insurance company
if a breach is committed of the condition excluding driving by a
named person or persons or by any person who is not fully licensed,
or by any person who has been disqualified for 'holding or obtaining
'
a driving licence during the period of disqualification. The expression D
'breach' is of great significance. The dictionary meaning of 'breach'
is 'infringement or violation of a promise or obligation". It is therefore
abundantly clear that the insurer will have to establish that the insured
is guilty of an infringement or violation of a promise that a person
who is duly licensed will have to be in charge of the vehicle. The E
very concept of infringement or violation of the promise that the
expression 'breach' carries within itself induces an inference that the
violation or infringement on the part of the promisor must be a wilful
infringement or violation. If the insured is not at all at fault and has
not done anything he should not have done or is not amiss in any
respect how can it be conscientiously posited that he has committed F
a breach? It is only when the insured himself placed the vehicle in
charge of a person who does not hold a driving licence, that it can
be said that he is 'guilty' of the breach of the promise that the vehicle
will be driven by the licensed driver. It must be established by the
insurance company that the breach was on the part of the insured and
that it was the insured who was guilty of violating the promise or G
infringement of the contract. Unless the insured is at fault and is
gu.ilty of a breach the insurer cannot escape from the obligation to
indemnify the insured and successfully contend that he is exonerated
having regard to the fact that the promisor (the insured) committed
a breach of his promise. Not when some mishap occurs by some H
502 SUPREME COURT REPORTS [2003) 2 S.C.R.

A mischance. When the insured has done everything within his power
inasmuch as he has engaged a licensed driver and has placed the
vehicle in charge of a licensed driver, with the express or implied
mandate to drive himself it cannot be said that the insured is guilty
of any breach. And it is only ·in case of a breach or a violation of the
promise on the part of the insured that the insurer can hide under the
B umbrella of the exclusion clause .••

xxx xxx xxx

C To construe the provision differently would be to rewrite the provision
by engrafting a rider to the effect that in the event of the motor
vehicle happening to be driven by an unlicenced person, regardless
of the circumstances in which such a contingency occurs, the insured
will not be liable under the contract of insurance. It needs to be
emphasised that it is not the contract of insurance which is being
D interpreted. It is the statutory provision defining the conditions of
exemption which is being interpreted. These must therefore be
interpreted in the spirit in which tlie same have been enacted
accompanied by an anxiety to ensure that the protection is not nullified
by the backward looking interpretation which serves to defeat the
provision rather than to fulfil its life-aim. To do otherwise would
E
amount to nullifying the benevolent provision by reading it with a
non-benevolent eye and with a mind not tuned to the purpose and
philosophy of the legislation without being informed of the true goals
sought to be achieved. What the legislature has given, the Court
cannot deprive of by way of an exercise in interpretation when the
F view which renders the provision potent is equally plausible as the
one which renders the provision impotent. In fact it appears that the
former view is more plausible apart from the fact that it is more
desirable. When the option is between opting for a view which will
relieve the distress and misery of the victims of accidents or their
dependants on the one hand and the equally plausible view which
G
will reduce the profitability of the insurer in regard to the occupational
hazard undertaken by him by way of business activity, there is hardly
any choice. The Court cannot but opt for the former view. Even if
one were to make a strictly doctrinaire approach, the very same
conclusion would emerge in obeisance to the doctrine of 'reading
H down' the exclusion clause in the light of the 'main purpose' of the
UNITED INDIA INSURANCE COMPANY LTD. v. LEHRU 503
provision so that the 'exclusion clause' does not cross swords with A
the 'main purpose' highlighted earlier. The effort must be to harmonize
the two instead of allowing the exclusion clause to snipe successfully
at the main purpose."

Thus Section 96 has been interpreted keeping in mind the object and
purpose of Legislature in providing for compulsory insurance. It has been B
held that Insurance Company gets absolved of its liability only if it establishes
that the breach is by the insured. It is held that if the insured is not at fault
and has not done anything he should not have done or is not amiss then he
cannot be held to have committed a breach.

It was held that as the owner had not authorised the cleaner to operate C
the truck the Insurance Company remained liable.

The question was again considered by a three Judge Bench of this
Court in the case of Sohan Lal Passi v. P. Sesh Reddy and Ors., reported in
[1996) 5 sec 21. In this case the bus was being driven by the cleaner, an D
employee of the owner, at the time of accident. The cleaner did not have a
valid licence. The Insurance Company sought to avoid liability on the ground
that there was breach of Section 96(2)(b )(ii) of the Motor Vehicles Act 1939
inasmuch as the vehicle was being driven by a person who was not duly
licensed. The Insurance Company questioned the correctness of the view
taken in Skandia 's case. Hence this case was placed before a three Judge E
Bench. The Bench held as follows:-

" .................. on behalf of the insurance company a stand was taken
that when Section 96(2)(b)(ii) has provided that the insurer shall be
entitled to defend the action on the ground that there has been breach
of a specified condition to the policy i.e. the vehicle should not be F
driven by a person who is not duly licensed, then the insurance
company cannot be held to be liable to indemnify the owner of the
vehicle. In other words, once there has been a contravention of the
condition prescribed in sub-section (2)(b)(ii) of Section 96, the person
insured shall not be entitled to the benefit of sub-section (I) of Section G
96. According to us, Section 96(2)(b )(ii) should not be interpreted in .
a technical manner. Sub-section (2) of Section 96 only enables the
insurance company to defend itself in respect of the liability to pay
compensation on any of the grounds mentioned in sub section (2)
including that there has been a contravention of the condition excluding
the vehicle being driven by any person who is not duly licensed. This H
504 SUPREME COURT REPORTS [2003] 2 S.C.R.

A bar on the face of it operates on the person ensured. If the person who
has got the vehicle insured has allowed the vehicle to be. driven by
a person who is not duly licensed then only that clause shall be
attracted. In a case where the person who has got insured the vehicle
with the insurance company, has appointed a duly licensed driver and
if the accident takes place when the vehicle is being dri\~en by a
B person not duly licensed on the basis of the authority of the driver
duly authorised to drive the vehicle whether the insurance company
in that even shall be absolved from its liability? The expression
'breach' occurring in Section 96(2)(b) ineans infringement or violation
of a promise or obligation. As such the insurance company wiJI have
c to establish that insured was guilty of an infringement or violation of
a promise. The insurer has also to satisfy the Tribunal or the Court
that such violation or infringement on the part of the insured was
wilful. If the insured has taken all precautions by appointing a duly
licensed driver to drive the vehicle in question and it has not been
established that it was the insured who ailowed the vehicle to be
D driven by a person not duly licensed, then the insurance company
cannot repudiate its statutory liability under sub-section (I) of Section
96. In the present case far from establishing that it was the: appellant
who had allowed Rajinder Pal Singh to drive the vehicle when the
accident took place, there is not even any allegation that it was the
E appellant who was guilty of violating the condition that the vehicle
shall not be driven by a person not duly licensed. From the facts of
the case, it appears that the appellant had done everything within his
power inasmuch as he has engaged a licensed driver Gurbachan Singh
and had placed the vehicle in his charge. While interpreting the contract
of insurance, the tribunals and courts have to be conscious of the fact
F that right to claim compensation by heirs and legal representatives of
the victims of the accident is not defeated on technical grounds. Unless
it is established on the materials on record that it was the insured who
had wilfully violated the condition of the policy by allowing a person
not duly licensed to drive the vehicle when the accident took place,
G the insurer shall be deemed to be a judgment debtor in respect of the
liability in view of sub-section (I) of Section 96 of the Act. It need
not be pointed out that the whole concept of getting the vehicle
insured by an insurance company is to provide an easy mode of
getting compensation by the claimants, otherwise in nonnal course
they had to pursue their claim against the owner from om: forum to
H the other and ultimately to execute the order of the Accidtmt Claims
'
'
UNITED INDIA INSURANCE COMPANY LTD. v. LEHRU 505
Tribunal for realisation of such amount by sale of properties of the A
owner of the vehicle. The procedure and result of the execution of the
decree is well known.

13. This Court in the case of Kashiram Yadav v. Oriental Fire and
General Insurance Co., [1989] 4 SCC 128 reiterated the views
expressed in Sikandia Insurance Co. Ltd. v. Koki/aben B
Chandravandan, [I 987] 2 SCC 654. While referring to that case
it was said: sec pp. 130-131, paras 5-6.

" ...... There the facts found were quite different. The vehicle
concerned on that case was undisputedly entru~ted to the
driver who had a valid licence. In transit the driver stopped c
the vehicle and went to fetch some snacks from the opposite
shop leaving the engine on. The ignition key was at the
ignition lock and not in the cabin of the truck. The driver
had asked the cleaner to take care of the truck. In fact the
driver had left the truck in care of the clearner. The cleaner
meddled with the vehicle and caused the accident. The D
question arose whether the insured (owner) had comm ''.ted
a breach of the condition incorporated in the certificate. of
insurance since the cleaner operated the vehicle on the fatal
occasion without driving licence. This Court expressed the
view that it is only ·~hen the insured himself entrusted the E
vehicle to a person who does not hold a driving licence, he
could be said to have committed breach of the condition of
the policy. It must be established by the Insurance Company
that the breach is on the part of the insured. Unless the
.
- insured is at fault and is guilty of a breach of the condition,
the insurer cannot escape from the obligation to indemnify F
the insured. It was also observed that when the insured has
done everything within his power inasmuch as he has engaged
the licensed driver and has placed the vehicle in his charge
with the express or implied mandate to drive. himself, it
cannot be said that the insured is guilty of any breach. G
We affirm and reiterate the statement of law laid down
in the above case. We may also state that without the
knowledge of the insured, if by drivers acts of omission
others meddle with the vehicle and cause an accident, the
insurer would be liable to indemnify the insured. The insurer H
506 SUPREME COURT REPORTS (2003) 2 S.C.R.

A in such a case cannot take the defence of a breach of the
condition in the certificate of insurance."

We are in respectful agreement with the view expressed ·in the
case of Skandia Insurance Co. Ltd. v. Kokilaben
Chandravandan. "
-
B
In spite of above enunciation of law the Insurance Companies still
continue to disclaim liability on the ground that the licence was fake. In the
case of New India.Assurance Co. Shim/av. Kam/a and Ors., reported in
[2001] 4 SCC 342_ the question was whether by virtue of Section 149(2)(a)(ii)
an Insurance Company could avoid liability if it is proved that the driving
C licence was fake. This Court considered, in detail, Section 149 of the Motor
Vehicles Act, 1988 and held that the insurer has to pay to third parties on
account of the fact that a policy of insurance has been issued in respect of
the vehicle. It is held that the insurer may be entitled to recover such sum
from the insured if the insurer was not otherwise liable to pay such sum to
D the insured by virtue of the contract of insurance. The question as to whether
or not the insured would be protected if he had made all enquiries was left
open. However, this point has been squarely dealt with in Skandia 's and
Sohan Lal Passi's cases (supra).

It is submitted that Kam/a 's case is not correctly decided. It is submitted.
E that sub-section (7) of Section 149 of the Motor Vehicles Act, 1988 has not
been noticed by this Court in Kam/a 's case. We see no substance in this
submission. A plain reading of Section 149 would show that an insurance
company would continue to be liable to third persons. Section 149 read· as
follows.

F "149. Duty of insurers to satisfj; judgmelfts and awards against persons
insured in respect of third party risk-(!) if, after a certific:ate of
insurance has been issued under sub-section (3) of Section 147 in
favour of the person by whom a policy has been effected, judgment
or award in respect of any such liability as is required to be covered
by a policy under clause (b) of sub-section ( 1) of section 147 (being
G a liability covered by the terms of the policy) or under the provisions
of section l 63A 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 person entitled to
H the benefit of the decree any sum not exceeding the sum assured
UNITED INDIA INSURANCE COMPANY LTD. v. LEHRU 507
payable thereunder, as if he were the judgment debtor, in respect of A
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 (emphasis supplied).

(2) No sum shall be payable by an insurer under sub-section (I)
in respect of any judgment or award unless, before the commencement B
of the proceedings in which the judgment of award is given the
insurer had notice through the Court or, as the case may be, the
Claims Tribunal of the bringing of the proceedings, or in respect of
such judgment or award so long as execution is stayed thereon pending
an appeal, and an insurer to whom notice of the bringing of any such C
proceedings is so given shall be entitled to be made a party thereto
and to defend the action on any of the following grounds, namely:-

(a) thaHhere has been a breach of a specified condition of the policy, .
being one of the following conditions, namely:-

(i) a condition excluding the use of the vehicle- D
(a) for hire or reward, where the vehicle is on the date of
the contract of insurance a vehicle not covered by a
permit to ply for hire or reward, or

(b) for organised racing and speed testing, or E
(c) for a purpose not allowed by the permit under which the
vehicle is used, where the vehicle is a transport vehicle,
or

(d) without side-car being attached where the vehicle is a
motor cycle, or F

(ii) a condition excluding driving by a named person or persons
or by any person who is not duly licensed, or by any person
who has been disqualified for holding or obtaining a driving
licence during the period of disqualification; or
G
(iii) a condition excluding liability for injury caused or contributed
to by conditions of war, civil war, riot or civil commotion;
or

(b) that the policy is void on the ground that it was obtained by the
non-disclosure of a material fact or by a representation of fact H
508 SUPREME COURT REPORTS [2003] 2 S.C.R.

A which was false in some material particular.

(3) Where any such judgment as is referred to in sub-section (I )is
obtained from a Court in a reciprocating country and in the case of
a foreign judgment is, by virtue of the provision of section 13 of the
Code of Civil Procedure, 1908 (5 of 1908) conclusive as to any
B .matter adjudicated upon by it, the insurer (being an insurer registered
under the Insurance Act, 1938 (4 of 1938) and whether or nnt he is
registered under the corresponding law of the reciprocating country)
shall be liable to the person entitled to the benefit of the decree in the
manner and·to the extent specified in sub-section(I), as if the judgment
were given by a Court in India.
c
Provided that no sum shall be payable by the insurer in respect
of any such judgment unless, before the commencement of the
proceedings in which the judgment is given, the insurer had notice
through the Court concerned of the bringing of the proceedings and
the insurer to whom notice is given is entitled under the corresponding
D law of the reciprocating country, to be made a party to the proceedings
and to defend the action on grounds similar to those specified in sub-
section(2).

(4) Where a certificate of issuance has been issued under sub-
section (3) of section 147 to the person by whom a policy has been
E
effected, so much of the policy as purports to restrict the insurance
of the persons insured thereby by reference to any condition other
than those in clause '(b) of sub-section (2) shall, as respects such
liabilities as are required to be covered by a policy under clause (b)
of sub-section (I) of section 14 7, be of no effect:
F
Provided that any sum paid by the insurer in or towards the
discharge of any liability of any person which is covered by the
policy by virtue only of this sub-section shall be recoverable by the
insurer from that person.

(5) If the amount which an insurer becomes liable under this
G
section to pay in respect of a liability incurred by a person insured by
a policy exceeds the amount for which the insurer would apart from
the provisions of this section be liable under the policy in respect of
that liability, the insurer shall be entitled to recover the excess from
that person.
H
UNITED INDIA INSURANCE COMPANY LTD: v. LEHRU 509
(6) In this section the expression "material fact" and "material A ·
particular" means, respectively a fact or particular of such a nature as
to influence the judgment of a prudent ensurer in determining whether
he will take the risk and, if so, at what premium and on what conditions
and the expression "liability covered by the terms of the policy"
means a liability which is covered by the policy or which would be B
so covered but for the fact that tht: insurer is entitled to avoid or
cancel or has avoided or cancelled the policy.

(7) No insurer to whom the notice referred to in sub-section (2)
or sub-section (3) has been given shall be entitled to avoid his liability
to any person entitled to the benefit of any such judgment or award C
as is referred to in sub-section (I) or in such judgment as is referred
to in sub-section (3) otherwise than in the manner provided for in
sub-section (2) or in the corresponding law of the law reciprocating
country, as the case may be."

Thus under sub-section (I) the Insurance Company must pay to the person •D
entitled to the benefit of the decree, notwithstanding that it has become "entitled
to avoid or cancel or may have avoided or cancelled the policy". The words
"subject to the provisions of this Section" mean that the Insurance Company
can get out of liability only on grounds set out in Section 149 Sub-section
(7), which has been relied on, does not state anything more or give any
higher right to the Insurance Company. On the contrary the wording of sub- E
section (7) viz. "No insurer to whom the notice referred to in sub-section (2)
or sub-section (3) has been given shall be entitled to avoid his liability"
indicate that the Legislature wanted to clearly indicate that Insurance
Companies must pay unless they are absolved of liability on a ground specified
in sub-section (2). This is further clear from sub-section (4) which mandates F
that conditions, in the insurance policy, which purport to restrict insurance
would be of no effect if they are not of the nature specified in sub-section
(2). The proviso to sub-section (4) is very illustrative. It shows that the
Insurance Company has to pay to third parties but it may recover from the
person who was primarily liable to pay. The liability of the Insurance Company
to pay is further emphasised by sub-section (5). This also shows that the G
Insurance Company must first pay, then it can recover. If Section 149 is read
as a whole it is clear that sub-section (7) is not giving any additional right
to the Insurance Company. On the contrary it is emphasising that the Insurance
Company cannot avoid liability except on the limited grounds set out in sub-
section (2).
H
510 SUPREME COURT REPORTS [2003] 2 S.C.R.

A Now let us consider Section 149(2). Reliance has been placed on Section
149(2)(a)(ii). As seen in order to avoid liability under this provision it must
be shown that there is a "breach". As held in Skandia 's and Sohan Lal
Passi's cases (supra) the breach must be on part of the insured. We are in full
agreement with that. To hold otherwise would lead to absurd results. Just to
B 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 he had
not license. Can the Insurance Company disown 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 person killed in the
accident may find that the decree obtained by them is only a paper decree as
C the owner is a man of straw. The owner himself would be an innocent
sufferer. It 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 is to insurance. In all businesses there is an element of risk. All
persons carrying on business must take risks associated with that business.
D 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 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
E at the time of accident was not duly licensed. The Insurance Company must
establish that the breach was on the part of the insured.

Section 3 of the Motor Vehicles Act, 1988 prohibits driving ofa motor
vehicle in any public unless the driver has an effective driving licence. Further
Section 180 of the Motor Vehicles Act makes an owner or person in charge
F of a motor vehicle punishable with imprisonment or fine if he causes or
permits a person without a licence to drive the vehicle. It is clear that the
punishment under Section 180 can only be imposed if the owner or person
in charge of vehicle "causes or permits" driving by a person not duly licensed.
Thus there can be no punishment if a person without a licence drives without
G permission of the owner. Section 149(2)(ii) merely n:cognises this condition.
It therefore only absolves the Insurance Company where there is a breach by
the insured.

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
H licence which on the face of it looks genuine, the owner is not expected to
UNITED INDIA INSURANCE COMPANY LTD. v. LEHRU 511

f'.ind out whether the licence has in fact been issued by a competent authority A
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 Insurance Companies expect owners to make enquiries
with RTO's, which are spread all over the country, whether the driving
licence shown to them is valid or not. Thus where the owner has satisfied
a
himself that the driver has licence and is driving competently there would
B
be no breach of Section l49(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
fake and still permitted that person to drive. More importantly even in such C
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's Soha~ Lal Passi's and Kamla's case. We are
in full agreement with the views expressed therein and see no reason to take
a different view.
D
In this view of the matter we see no substance in this appeal. The
appeal stands dismissed with cost of Rs. 20,000. This amount of costs to be
shared equally between the claimants on one hand and the insured on the
other. Clarified that the costs awarded therein is in addition to the costs
directed to be paid by the Motor Accidents Claim Tribunal. E
The amount deposited is allowed to be withdrawn by the claimants i.e.
respondent Nos. I to 11 herein.

R.P. Appeal dismissed.