Section 147 of the Motor Vehicles Act, 1988 – Scope, Limits and Judicial Construction

Section 147 of the Motor Vehicles Act, 1988 – Scope, Limits and Judicial Construction

Introduction

Section 147 of the Motor Vehicles Act, 1988 (“the 1988 Act”) is the fulcrum of compulsory third-party motor insurance in India. It prescribes the minimum content of a policy (“Act policy”) and delineates the categories of persons and risks mandatorily covered. Despite its apparently straightforward wording, the provision has generated sustained litigation concerning (i) the quantum of an insurer’s liability, (ii) the classes of persons protected, and (iii) the circumstances in which an insurer may evade or limit liability. The following article critically examines the statutory text, its legislative evolution, and the seminal judicial decisions that have shaped its contemporary interpretation, with particular emphasis on the Supreme Court’s jurisprudence from New India Assurance Co. Ltd. v. C.M. Jaya[1] to National Insurance Co. Ltd. v. Swaran Singh[2].

Legislative Context and Evolution

From Section 95 (1939 Act) to Section 147 (1988 Act)

Section 147 was substantially modelled on Section 95 of the Motor Vehicles Act, 1939, but with two notable departures: (a) deletion of proviso (ii) to Section 95(1)(b) – formerly obligating coverage of certain gratuitous passengers – and (b) re-structuring of the definition of “public service vehicle” and “goods carriage”. Pre-1994, Section 147 continued almost verbatim from the 1939 Act[3]; the Motor Vehicles (Amendment) Act, 1994 then enlarged the statutory shield by expressly including “owner of the goods or his authorised representative” in goods vehicles and by removing any monetary ceiling on death or bodily injury claims[4].

Textual Anatomy

Sub-section (1) compels every “policy of insurance” to insure the specified person(s):

  • Clause (b)(i) – against liability for death or bodily injury to “any person, including owner of the goods or his authorised representative carried in the vehicle”, or damage to third-party property;
  • Clause (b)(ii) – against death or bodily injury to any passenger of a public service vehicle.

The proviso exempts the policy from covering employees of the insured beyond Workmen’s Compensation Act (“WCA”) liability and from contractual liabilities. Sub-section (2) then abolishes any upper monetary limit for personal injury/death, while retaining a modest cap for property damage (₹6,000, later enhanced by delegated legislation).

Key Themes in Judicial Interpretation

I. Statutory versus Contractual Limits of Liability

In C.M. Jaya the Supreme Court resolved the conflict between Shanti Bai and Amrit Lal Sood, holding that a “comprehensive” (own-damage) policy does not ipso facto enlarge third-party liability beyond Section 147; extension requires an express contractual clause underwritten by additional premium[1]. Thus, for pre-1994 accidents the insurer’s liability remained capped (at ₹50,000 for death, ₹10,000 for injury in the case of goods vehicles) unless otherwise agreed[5]. Post-1994, statutory caps disappeared but the principle of contractual primacy survived – the insurer’s obligation cannot exceed what is statutorily mandated or contractually promised, whichever is higher.

II. Persons Covered: Gratuitous and Other Passengers

(a) Passengers in Goods Vehicles

The trajectory from Satpal Singh to Asha Rani and Baljit Kaur demonstrates the Court’s shift from an expansive to a restrictive reading. Satpal Singh (2000) treated the omission of proviso (ii) as legislative intent to cover all passengers[6]. A five-Judge Bench in Asha Rani (2003) reversed this reasoning, emphasising the word “goods” in “goods carriage” and the absence of any statutory command to insure gratuitous passengers pre-1994[7]. Subsequently, Baljit Kaur (2004) reaffirmed that even post-1994, gratuitous passengers in goods vehicles remain outside the compulsory cover; the insurer, however, must first satisfy the award and then recover from the owner to protect innocent victims[8].

(b) Excess Passengers and Capacity Breach

In United India v. K.M. Poonam (2011) the Court held that the insurer’s liability is confined to the number of passengers mentioned in the policy; carrying fifteen persons in a jeep authorised for six constituted a fundamental breach. Yet, following Baljit Kaur, the insurer was directed to pay and recover, ensuring victim compensation while enforcing contractual discipline[9].

(c) Pillion Riders and Private Vehicle Occupants

Tilak Singh (2006) clarified that a statutory (Act-only) policy on a two-wheeler does not cover a gratuitous pillion passenger. Extension requires a specific endorsement (IMT-70) and premium[10]. Similarly, in Dhanraj (2004) and Usha Taneja (2022) the Courts denied indemnity for the insured owner himself or family members unless a personal-accident or other voluntary cover existed[11].

III. Driver Qualifications, Breach, and Insurer’s Defences

(a) Unauthorized Drivers

Skandia (1987) and Sohan Lal Passi (1996) introduced a nuanced test: an insurer can avoid liability under Section 149(2)(a)(ii) (formerly Section 96) only if it proves a willful and fundamental breach by the insured. Mere presence of an unlicensed driver is insufficient if the owner exercised due diligence in employing a licensed driver and the deviation occurred without knowledge or consent[12].

(b) Burden of Proof under Section 149

Swaran Singh (2004) consolidated the above principles, holding that the burden to establish breach rests squarely on the insurer; even a fake or expired licence will not ipso facto absolve liability unless a causal nexus with the accident and owner’s knowledge is demonstrated. The ruling emphasised the social-welfare character of Chapter XI and interpreted “duly licensed” purposively[2].

IV. Employees Travelling in the Vehicle

Section 147’s proviso limits compulsory coverage for employees to WCA liability. In Meena Variyal (2007) the Court held that, absent a special contract, the insurer is not liable for common-law or Fatal Accidents Act claims by dependants of an employee who was not a “third party”[13]. The ruling underscores the legislative choice to treat employees separately.

Interaction between Sections 147 and 149

While Section 147 creates the substantive obligation to insure specified risks, Section 149 imposes a statutory duty on insurers to satisfy judgments and awards, yet recognises limited defences mirroring the proviso to Section 147 and certain policy conditions. The Supreme Court has repeatedly reiterated that these defences must be strictly construed and are available only inter partes; towards third parties the insurer’s liability is primary, subject to eventual restitution from the insured where breach is proved (Baljit Kaur, Poonam).

Policy and Practical Implications

  • Premium Adequacy: Judicial insistence on contractual specificity compels insurers to calibrate premiums commensurate with risk (e.g., endorsements for passengers, personal accident covers).
  • Victim Protection: The “pay-and-recover” device balances social-welfare objectives with contractual freedom, ensuring timely compensation without rewarding policy breaches.
  • Risk Management by Owners: Owners must verify licences, restrict passenger carriage per permit, and procure appropriate add-ons to mitigate exposure.
  • Drafting Clarity: Ambiguities in policy wording are construed contra-proferentem against insurers (Skandia); meticulous drafting is paramount.

Conclusion

The jurisprudence on Section 147 manifests a careful judicial endeavour to harmonise statutory mandates, contractual autonomy, and the remedial purpose of motor-insurance law. Three cardinal principles emerge: (i) statutory minima under Section 147 are non-derogable, but expansion of cover is a matter of contract; (ii) exclusions and defences under Section 149 are construed narrowly, with the insurer bearing the burden to establish a willful and causal breach; and (iii) innocent third-party victims remain central – where necessary, courts deploy equitable mechanisms such as pay-and-recover to uphold their rights. As motor-traffic density and accident rates burgeon, the continued fidelity to these principles will be crucial in striking an equitable balance among victims, owners and insurers in India’s evolving insurance landscape.

Footnotes

  1. New India Assurance Co. Ltd. v. C.M. Jaya & Ors., (2002) 1 SCC Civ 696.
  2. National Insurance Co. Ltd. v. Swaran Singh & Ors., (2004) 3 SCC 297.
  3. New India Assurance Co. Ltd. v. Phelishsa Bakai & Ors., 2005 (2) GLT 460.
  4. Statement of Objects and Reasons, Motor Vehicles (Amendment) Act, 1994; see also New India v. Asha Rani, (2003) 2 SCC 223.
  5. Section 95(2) of the 1939 Act (as applied in C.M. Jaya).
  6. New India Assurance Co. Ltd. v. Satpal Singh & Ors., (2000) 1 SCC 237.
  7. New India v. Asha Rani (supra).
  8. National Insurance Co. Ltd. v. Baljit Kaur & Ors., (2004) 2 SCC 1.
  9. United India Insurance Co. Ltd. v. K.M. Poonam & Ors., (2011) AIR SC 2802.
  10. United India Insurance Co. Ltd. v. Tilak Singh & Ors., (2006) 4 SCC 404.
  11. Dhanraj v. New India Assurance Co. Ltd., (2004) 8 SCC 553; New India Assurance Co. Ltd. v. Usha Taneja & Ors., (2022) Allahabad HC.
  12. Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan & Ors., (1987) 2 SCC 654; Sohan Lal Passi v. P. Sesh Reddy, (1996) 2 SCC No 871.
  13. Oriental Insurance Co. Ltd. v. Meena Variyal & Ors., (2007) 5 SCC 428.