The Judgment of the Court was delivered by
Ramakrishnan, J.:— The appeal is filed in forma pauperis by the plaintiff from the Judgment and decree of the learned Second Assistant Judge, City Civil Court, Madras in O.S No. 2514 of 1959, which was also a suit tiled in forma pauperis. The memorandum of cross appeal is filed by the third defendant in the suit Messrs Hercules Insurance Company.
1. A Vauxhall car bearing No. MYA 4446 driven by a driver by name Ramaswami collided near the Walajah Gate of Fort St. George at about 11-30 A.M on 4th December, 1958, with a bicycle ridden by the plaintiff. The plaintiff was employd at that time as a hammering attender in the binding department of the Accountant-General's Office, Madras, a Class IV servant getting a salary of Rs. 97 per mensem. As a result of the accident he sustained fracture of the wrist and his capacity to do his duty was seriously impaired. It was the case of the plaintiff that the accident which caused him this injury was due to the negligence of the driver, the aforesaid Ramaswami, of the car. The driver was prosecuted under section 338 and section 116 of the Motor Vehicles Act in a criminal case before the Chief Presidency Magistrate, where he pleaded guilty to the charge of rash and negligent driving and was fined as a result. The registration of the aforesaid car stood in the name of the second defendant till 29th August, 1958, when the ‘C’ Certificate relating to the car appears to have been transferred to the first defendant the daughter of the second defendant. The car had been insured against the third party risk with the third defendant, Messrs Hercules Insurance Company. Alleging that the damages sustained by the plaintiff could be estimated at Rs. 6,000, the plaintiff claimed this amount from the three defendants. The second defendant died in the course of the suit and the first defendant was also recorded as his legal representative by the order of the Court.
2. The first defendant's plea was briefly this. It was untrue to say that the plaintiff become incapacitated for work because of the injury. In any event the amount of Rs. 6,000 claimed as damages was excessive. The second defendant, who was the owner of the car had transferred it to the first defendant on 11th August, 1958, and the ‘C’ Certificate was transferred to her name on 29th August, 1958. The second defendant had insured the car with the third defendant and the insurance extended upto 12th September, 1958, covering third party risk. The first defendant paid the premium for the issue of a policy in her name covering third party risk from 31st August, 1958 to 30th September, 1959. While she was expecting the issue of a policy in the usual course, the present accident happened on 4th December, 1958. When the first defendant's representative called at the third defendant's office, at Bangalore for the issue of a policy, she learnt that the policy had been wrongly issued in the name of the second defendant for the period 31st August, 1958 to 30th September, 1959. The third defendant's office at Bangalore suggested that if a transfer of the said policy was effected, the matter could be regularised and that they would meet the claim of the plaintiff. The third defendant also instructed the first defendant not to reply to the letter of the plaintiff under any circumstances so that the third defendant might defend an action by the plaintiff. Because of this, the first defendant did not reply or take any proceeding. Thereafter the third defendant transferred the policy issued in the name of the second defendant to the first defendant. In February 1959 she sold the car to a third party.
2. The plea of the Insurance Company, the third defendant, was this. The plaintiff is put to strict proof of the injury and the quantum of damages claimed by him. The policy of insurance for the said car was issued only in the name of the second defendant. Only on 9th July, 1959, did the third defendant come to know from the Regional Transport Officer, Bangalore, that the registration of the car was transferred to the first defendant on 29th August, 1958. Only on 5th December, 1958, was the third defendant intimated about the transfer of the said car with a request to issue cover of insurance in the name of the first defendant. Thereupon the third defendant transferred and issued a fresh cover of insurance for the said car in favour of the first defendant effective only from 5th December, 1958. Since their was no effective policy of insurance as on the date of the accident, 4th December 1958, no claim could be made against this defendant in respect of the alleged accident on 4th December, 1958.
3. The learned Second Assistant Judge of the City Civil Court found that the accident was caused by the rash and negligent driving of the car MYA 4446, that the driver was employed at that time for his master's purpose and that the owner of the car on the date of the accident, the first defendant, was liable to pay damages to the plaintiff. Secondly, as regards the quantum of damages the finding of the learned Assistant Judge was that the plaintiff did not sustain a permanent disability or an injury of a permanent character. The first sentence in paragraph 13 of the printed judgement of the lower Court, which gives a contrary import, appears to have been due to a printer's devil. The lower Court found that even though the plaintiff did not sustain a permanent disability or an injury of a permanent character, damages had to be awarded to him for the pain and suffering undergone by him as a result of the accident, in view of the fact that he had developed wrist drop and radial nerve paralysis for some time, while he as under going treatment, as an inpatient for 4 days at the General Hospital, and an outpatient for more than one month at the Royapettah Government Hospital. He had also to take leave for six months following the accident. The lower Court took the surrounding circumstances into consideration and referred to the fact that in such cases the assessment of compensation should necessarily be a matter to some extent of conjecture and decided that the quantum of damages should be Rs. 1,000. Thirdly, the lower Court found that even though on the date of the accident, the policy of insurance stood in the name of the second defendant, and even though the registration of the car had been transferred prior to that dale to the first defendant, the insurance company was liable to meet the claim of the plaintiff. For this conclusion the lower Court relied upon section 96 of the Motor Vehicles Act as interpreted by a decision of Anantanarayanan, J., in Madras Motor Insurance Co., Ltd. v. Mohamed Mustafa Badsha . 1960 2 M.L.J 202. In the result, the plaintiff was given a decree for 1,000 for damages as against defendants 1 and 3. Parties were directed to pay and receive proportionate costs. The plaintiff was directed to pay the Court-fee due to the Government on the pauper suit.
4. The plaintiff has appealed from the decree of the lower Court. He died in the course of this appeal and his legal representative was brought on record. The appellant urged that the quantum of damages awarded to him was inadequate. He contended further that the lower Court ought to have awarded proportionate costs to the defendants as against the plaintiff as in similar circumstances a plaintiff cannot be expected to evaluate quantum precisely and that if the Court were to fix the quantum later on at a lower figure, it would not be proper in such a case to award proportionate costs against the plaintiff. It was also urged by he learned Counsel that the direction for the plaintiff to pay the Court-fee due to Government will practically exhaust the relief of damages awarded to him and he will get no tangible benefit from the decree. The liability placed oo the plaintiff to pay the Court-fee due to Government is therefore attacked as improper.
5. The cross-objector the 3rd defendant urged that as there was no effective and valid Insurance Policy on 4th December, 1958, the date of the accident, the Insurance Company should not be made liable for the quantum of damages. The previous insurance policy had lapsed by efflux of time on 12th September, 1958, and there was no insurable interest with the assured, between 12th September, 1958 and 4th December, 1958, when the accident took place. The policy issued to the 1st defendant on 5th December, 1958, was void on the ground that it was obtained by the non-disclosure of a material fact, viz., the accident in which the car was involved on 4th December, 1958. It was also urged that the lower Court was wrong in finding the driver negligent on the basis of the Judgment of the criminal Court.
6. The points for determination in the appeal and the cross appeal are:—
1. Was the accident caused due to the negligence of the driver Ramaswami of the car?
2. What is the proper amount for the quantum of damages?
3. What is the proper order to be passed in the matter of costs and Court-fee on the pauper suit; and,
4. Is the 3rd defendant Insurance Company liable to pay damages awarded by the Court?
7. Since under Point No. 4 above, I have proposed to refer the case for decision by a Bench of this Court, it is unnecessary for me to give a finding under Points 1 to 3. However the arguments urged by the Counsel on both side on the several points are:
Point No. 1: It was contended by the cross-objector that the lower Court relied exclusively on the Judgment of the criminal Court finding the driver negligent whereas it should have come to the conclusion on the evidence in the case. A reference to para. 9 of the judgment of the lower Court shows no doubt that the Court had in view the Judgment of the Chief Presidency Magistrate. But it also took into account the fact that the driver of the car had admitted during the hearing of the Criminal case that he had acted rashly and negligently in driving the car. Apart from this in the present case, there was the evidence of the plaintiff himself regarding the circumstances in which the accident happened. He was keeping to the left side of the road near the Wallajah Bridge and it was then that car MYA 4446 came on the opposite direction and knocked him down. It was therefore urged that there was thus ample material for the Court to give a finding about the negligence of the driver apart from the proceedings in the Criminal case. As already mentioned there is no dispute in this case regarding the vicarious liability of the owner of the car for the driver's negligence.
Point No. 2: I have carefully gone through the evidence in this case both of the plaintiff as well as of D.W 2, the Assistant Surgeon who treated the plaintiff, the plaintiff was attending to hammering as an attender in the Accountant-General's Office. After the accident for some time he could not use his hand. He had to take leave for six months. Thereafter he has been employed in the Accountant-General's Office on the same salary but in a different job where hammering is not involved. According to the Doctor the fracture had become united when he saw the plaintiff soon after he was discharged from the General Hospital that the plaintiff might be able to take meals, with his right hand that the plaintiff could lift small weights with his right hand and he could write, that to a limited extent he could attend to the normal work and that after treatment the plaintiff was relieved of his disability to some extent. While he was undergoing treatment he had developed wrist drop and radial nerve paralysis. But these conditions have subsequently disappeared, thanks to the treatment. It was in such circumstances the lower Court came to the conclusion that as a result of the injury the plaintiff had not lost his earning capacity and that what was to be compensated in substance in this case was for the suffering and pain undergone by him as a result of the accident. There might be some impairment of the efficiency of his right hand. No doubt he could not wield a hammer as he was doing before the accident with his right hand. As already mentioned that has not at all affected his job. His superiors have put him to some other branch of work where so much physical strain is not involved. It is in such circumstances the lower Court fixed the quantum of damages at Rs. 1,000 no doubt on an arbitrary basis. But the plaintiff as a Government servant was treated in the hospital without any extra charges and there was only the question of his suffering, pain and mental anxiety during the period of his treatment. Even though he did remain as an in-patient in the hospital for 4 days, for the rest of the time he was having his treatment as an out-patient. He was on leave for six months. There is no evidence to show that he suffered from any loss in the emoluments during that period.
Point No. 3: The appellant's learned Counsel urged that in the very nature of the case where the quantum of damages has to remain uncertain till a fair estimate is given by an impartial authority, the plaintiff could not estimate the correct figure in the plaint. He can only assert the circumstances leading to the liability of the defendants for the damages and give an approximate amount for the quantum. In a decision of the Allahabad High Court reported in Rahim Bakhsh…(Defendant); v. Bachcha Lal…(Plaintiff).* which is a suit for damages for defamation the Court at page 518 observed:
“We do not think that the Court below has exercised a sound discretion in allowing the plaintiff costs proportionate to the claim allowed by it. The plaintiff's cause of action was well-founded. The defendant was clearly a wrong doer. We think that in a case where it was extremely difficult for the plaintiff to value his claim at a particular figure, he was justified in assessing his claim at Rs. 5,100. We are of opinion that the plaintiff is entitled to his costs………
8. It was urged by the appellant's learned Counsel that the above reasoning could be adopted to this case and the decree of the lower Court should be modified by directing the plaintiff to recover his full costs from the defendants besides and that the defendants should be made liable to pay the Court-fees payable on the plaint.
Point No. 4: Sri Govind Swaminathan appearing for the cross objector, the 3rd defendant Insurance Company referred to section 96(2) of the Motor Vehicles Act which sets out a list of grounds which will be open to an Insurer to urge in defence to an action by the Insured for damages in accordance with the terms of the Insurance Policy. It is not necessary to recapitulate clauses (a), (b) and (c) of section 96(2) because the contention of Sri Govind Swaminathan for the cross-objector is that the grounds set out in section 96(2)(a), (b) and (c) are grounds which will apply when there is a valid policy of insurance: but where the Insurer has parted with the car (which is the subject-matter of the Insurance) at the time of the accident to a third party the policy effected with the former owner will no longer hold good in respect of an accident subsequent to the transfer; it is necessary for covering the liability arising out of such an accident by a fresh insurance in favour of the transferee or some other appropriate agreement by which the Insurer is made aware of the transfer and holds himself liable for damages arising out of an accident after the car has come into the ownership of the transferee. In other words, the Insurance Company should have agreed to treat the transferee as the insured after the transfer at the time of the accident. Learned Counsel referred to section 10(1) of the English Road Traffic Act, 1934, which contains provisions analogous to those in section 96 of the Indian Act—Motor Vehicles Act, 1939 and corresponding English decisions under section 10(1) of that Act. Section 10(1) of the English Road Traffic Act reads thus:
“Duty of Insurers to satisfy Judgements against persons insured in respect of third party risks: If after a certificate of Insurance has been delivered under sub-section (5) of section 36 of the Principle Act to the person by whom a Policy has been effected, Judgement in respect of any such liability as is required to be covered by a policy under para (b) of sub-section (1) of section 36 of the Principal Act (being a liability covered by the terms of the policy) is obtained against any person insured by the policy, then notwithstanding that the insurer may be entitled to avoid or cancel or may have avoided or cancelled the policy, the Insurer shall subject to the provisions of the section pay to the persons entitled to the benefit of the Judgement any sum that may be payable there-under in respect of the liability including any amount payable in respect of costs and any sum payable in respect of interest on that due by virtue of any enactment relating to interst on Judgment.”
9. Whereas in section 10(1) of the English Act the words used are “notwithstanding that the Insurer may be entitled to avoid or cancel or may have avoided or cancelled the Policy” in section ??? of the Indian Act (Motor Vehicles Act) the clause used is
“an insurer to whom notice of the bringing of any such proceedings is so given shall be entitled to be made a party thereto and to defend the action on any of the following grounds”.
10. Commenting on the use of the words ‘entitled to’ in this context Shawcross on the Law of Motor Insurance, Second Edition at page 287 observes:
“The words ‘is entitled to’ are vital. They show that the section has no application to a Policy which has been automatically avoided as when the assured dies, becomes, bankrupt, or parts with the insured vehicle.”
11. Sri Govind Swaminathan relies on this observation and argues that where the insurer has parted with the insured vehicle and the Insurance Co. has entered into no fresh arrangement with the transferee recognising his transfer and holding itself bound to him for the accident sub-sequent to the date of the transfer, it would be a case of the liability of the insurer under the policy becoming automatically avoided. One may refer to section 102 of the Motor Vehicles Act which preserves the insurers liability after the death of the insured, and preserves the survival of the cause of action arising out of the said event, against his estate or against the insurer. Cases of bankruptcy of the insured are provided for in the Motor Vehicles Act in section 97 but cases of transfer are not similarly provided. Until and unless the insurance Company enters into a fresh arrangement with the transferee it is pointed by the learned Counsel for the cross-objector, the liability cannot continue alter the transfer.
12. Learned Counsel also referred to the decisions which have interpreted the corresponding provisions of the English Road Traffic Act, 1930 and later on of 1934. He cited Peters v. General Accident and Lije Assurance Corporation Ltd.. A Motor Van said to have been insured with the General Accident and Life Assurance Corporation knocked down on Peters at a time when one Pope was driving it. Peters recovered Judgment against Pope for damages and claimed also a right to recover damages from the Insurance Company in accordance with the terms of the Policy. But the car originally was the property of one Coomber who had insured it with the company; Coomber had sold the car to Pope, who drove the car at the time of the accident. The Insurance Policy was handed over by Coomber to Pope together with an application form for a new Policy and the Registration Book but nothing was done by Pope to contact the Insurance Company and make it aware of the transfer. In such circumstances, Goddard J. following his earlier decision Tattersall v. Drysdale . L.R 1935 2 K.B 174., observed at page 633:
“I am dealing with burglary, fire accident and so forth. I do not think you can assign the Policy so as to make of what is a contract of personal indemnity to A, a contract of personal indemnity to B. You cannot thrust a new assured upon a Company against its will. If you do that, you must have novation. You must have the release of the assured and the acceptance of a new assured………………… Sorry as I am for Mr. Peters, he is thus left with an award of damages and costs amounting to some £500 and only somebody who has not 500 S. to proceed against. In this case I cannot say that the person who injured him was insured. The fact was that he was driving an uninsured car.”
13. As revealed by the above forcible expression of his view by Goddard, J. circumstance i.e, after the transfer of the car and without there being any privity of contract between the Transferee and the Insurer, there could not be any more a valid Insurance Policy in existence in respect of the car to cover accidents subsequent to the transfer. In the present case, after the transfer of the car and the transfer of the Registration Certificate thereafter on 29th August, 1958, from the 2nd defendant to the 1st defendant there was no valid Policy which would cover the accident on 4th December, 1958. The Insurance Co. contended that the intimation regarding the transfer was received by it from the 1st defendant only on 5th December, 1958 and that without mentioning the accident on 4th December 1958. There was a contention by the 1st defendant that she paid the premium on 31st August, 1958, for the issue of a Policy in her favour covering third party risks from 31st August, 1958 to 30th September, 1959, but there is no satisfactory evidence in proof of that fact. She has not gone into the witness box to speak to it. We have only Exhibit B-19 a certificate of renewal of insurance dated 30th October, 1958, in favour of the 2nd defendant and the letter of the 1st defendant to the Insurance Company is Exibit B-20 dated 5th December 1958. We have an Insurance cover note of some other date Exhibit B-15 in favour of the 1st defendant. The lower Court has not found on the evidence that the 3rd defendant had in fact been made aware of the transfer to the 1st defendant prior to 5th December, 1958. It proceeded to determine the 3rd defendant's liability on the basis of the decision of Anantanarayanan, J., in Madras Motor Insurance Co., Ltd. v. Mohamed Mustafa Badsha where the learned Judge observed:
“In view of the specific provision in section 96 of the Motor Vehicles Act it cannot be contended that a policy of Insurance lapses the moment the insured parts with the ownership of the vehicle. Even if the insurer has any ground which would entitle him to avoid the Policy as against the insured, the insurer cannot escape the liability to pay the victim of an accident so long as the policy is current and valid. Sale of the vehicle is not a ground under the section to avoid a policy of insurance. Hence where the owner of a vehicle which is insured under the Act against the 3rd Party risks sells the same to another but transfer of ownership or transfer of the Policy has not yet taken place, and an accident occurs the Insurance Co. cannot escape its liability under the Policy.”
14. Learned Counsel Sri Govind Swaminathan appearing for the cross-objector contended that this statement of the law by the learned Judge, is opposed to the decisions both in England as well as of other High Courts in India besides the observation of Shawcross above referred to. In Gyarsilal v. Sitacharan a Bench of Madhya Pradesh High Court has specifically dissented from the view expressed in the above Madras case. In Des Raj v. Concord of India Insurance Co. . A.I.R 1951 Punj. 114. it has been observed that a Motor Insurance Policy does not remain in force if there is a change of ownership of the car insured unless there is an agreement between the company and the new owner that the Policy shall remain in force. Anantanarayanan, J., in Madras Motor Insurance Co., Ltd. v. Mohamed Mustafa Badsha . 1960 2 M.L.J 202. referred to the decision of Goddard J., in Peters v. General Accident and Life Assurance Corporation Ltd.,5 and observed that there was no term in the Policy before the learned Judge for the purpose of lapsing in the event of transfer of that property. But it is pointed by Govind Swaminathan that the decision of Goddard, J., did not proceed on the basis of such clause in the Policy but it proceeded on general principles that the contract between the insurer and the insured including liability for third party risk will not subsist when the insurer parts with the car to a third party. The original Policy of Insurance in this case has not been produced. But Sri Govind Swaminathan showed me a sample of the Policy which according to him has been uniformly used by the Company. There is no clause there about the Policy lapsing in the event of a transfer. But as mentioned already it is not necessary to have a clause in the Policy for its lapsing in the event of a transfer. It cannot subsist when the insured car itself is transferred unless either by agreement or by a special provision in the Statute (as in the case of death or bankruptcy) the liability can be enforced even after the transfer.
15. Learned Counsel for the cross-objector has submitted that in view of the importance of this question which is likely to occur very frequently and in which the Insurance Companies as well as the public are greatly interested, it will be necessary to get a decision on this matter by a Bench of this Court, especially in view of the conflict between the decision of this Court given by Anantanarayanan, J., above cited, and of other Courts in India. After carefully considering this question I am of opinion that there is scope for taking a different view from that of Anantanarayanan, J., and that as the matter is of considerable public importance, it will be appropriate for being considered by a Bench of this Court. The case will be placed before my Lord the Chief Justice accordingly.
16. Pursuant to the order of reference the appeal and memorandum of cross-objections came on for hearing before a Bench (Veeraswami and Kunhamed Kutti, JJ.)
R. Rangachari, Advocate, for Appellants 2 to 4.
T. Aravamuda Iyengar, Advocate, for 1st Respondent.
S. Govind Swaminathan, for Habibullah Badsha, E.S Govindan and G.A Khan Advocates, for 2nd Respondent.
The Judgement of the Court was delivered by:
Veeraswami, J.*:— The appeal and the Memorandum of cross—objections raise a question of Importance as to accident liability to third party under Motor Insurance and come before us on a reference by Ramakrishnan, J. The precise point for our decision is whether the Insurer of a Motor car is not liable to a third party on a comprehensive policy of insurance on account of an accident to him by the negligence of the assured's driver because the accident took place after this assured as the owner of the car had sold it to another and before the purchaser got an extension of the cover to him or obtained a fresh policy. The Court below followed as it was bound to, Madras Motor Insurance Co., Ltd. v. Mustafa Badsha and held against the insurer. Anantanarayanan, J, was there of the view that a policy of insurance did not lapse the moment the Insured parted with the ownership of the insured vehicle and that notwithstanding such transfer of ownership the insurer having regard to the terms of section 96 of the Motor Vehicles Act could not escape his liability on the Policy in respect of third party risks. The lower Court decreed the suit against defendants. 1 and 3 for Rs. 1,000. The plaintiff has preferred an appeal dissatified with the quantum awarded by the Court below and the 3rd defendant has preferred cross-objections canvassing the correctness of the view of Anantanarayanan, J.
17. The facts of this case are not now in dispute. A Vauxhall Saloon with registration mark MYA. 4446 owned by one Venkataswamiappa the 2nd defendant was insured in his name with the Hercules Insurance Co. Ltd., at its Branch Office at Madras under a comprehensive policy covering third party risks. During the currency of the policy the defendant sold his car to his daughter the 1st defendant on 11th August, 1958 and the transfer of ownership to her was effected by the Regional Transport Officer at Bangalore on 29th August, 1958. But the Insurance Company, the 3rd defendant had no knowledge of this transfer until 5th December, 1958. On that date the 1st defendant applied for and obtaind on the same date a fresh Policy of Insurance from the 3rd defendant in her name. This policy clearly mentioned its effective date of commencement to be 5th December 1958. In the meantime on 4th December, 1958 the car knocked down the plaintiff from his cycle as he was riding from the Fort along the Munroe Statue Road at Madras, resulting in fracture of his right forearm. The man who was driving the car at the time was prosecuted for criminal negligence and was convicted. The plaintiff in the circumstances brought the suit claiming Rs. 6,000 against defendant as damages. He impleaded the 3rd defendant the insurer as liable to him under the third party cover. The Court below found the negligence of the driver and fixing the demages at Rs. 1,000 decreed the suit against the defendants I and 3, the 2nd defendant having died pendente lite. In doing so, the Court below relying on Madras Motor Insurance Co., Ltd. v. Mohamed Mustafa Badsha rejected the 3rd defendant's contention that the policy had terminated with the sale of the car in August, 1958 and that it was not in force on the date of the accident to make him liable to the suit claim. Before proceeding further to conclude the facts we must mention that when the 1st defendant applied for and got a fresh policy on 5th December, 1958 she did not apprise the Company of the accident that had occurred the previous day.
18. The Policy of Insurance issued to the 2nd defendant is in the usual form and has been issued in the name of the 2nd defendant in respect of his car specified in it with details as to its name, cubic capacity, year of manufacture, value, type of body, seating capacity and as to whether it was new or second hand and provides for comprehensive cover including third party risks. The proposer among other queries was asked whether he was the sole owner of the car and whether it was registered in his name and the 2nd defendant had provided the answers in the affirmative. The proposal and declaration under the stipulation in the Policy were to form the basis of the contract and deemed to be incorporated therein. The indemnity under the policy related to a loss or damage of the insured car and in the event of accident caused by or arising out of the use of the car to the liability for all sums including claimant's costs and expenses which the Insured was obliged to pay in relation to the death of or bodily injury to any person. Certain general exceptions to the liability under the Policy and conditions some of which were intended to comply with the provisions of the Motor Vehicles Act were also incorporated as terms of the policy. It may be seen that the policy issued to the 2nd defendant was thus in compliance with section 95(1)(b) of the Motor Vehicles Act and it is not in dispute that as required by sub-section (4) of that section, a certificate of insurance had also been issued to the 2nd defendant in whose favour the insurance had been effected. If the policy was in force on the date of the accident, there could be no question of the 3rd defendant's liability on the third party risk. There is no term in the contract of insurance in this case providing for continuance of the policy on transfer of ownership of the car by the assured during the currency of the policy.
19. Chapter VIII of the Motor Vehicles Act concern insurance of motor vehicles against third party risks. One of its provisions makes motor insurance against third party risks compulsory for use of a motor vehicle in a public place and section 95(1)(b) indicates the kind of risk such a policy should cover in respect of particular classes of vehicles and in the case of the 2nd defendant's car, the policy should insure him to the extent specified in the section against any liability which may be incurred by him in respect of death or bodily injury to any person caused by or arising out of the use of the vehicle in a public place. The other provisions in Chapter VIII make it abundantly clear that the policy should be expressed in terms that it insures the person specified in it and in respect of the vehicle to which it relates. Even apart from the statutory provisions a contract of insurance is between the insurer and the insured and its subject-matter is the car specified in it and it is the risk arising out of its use that the insurer undertakes to compensate against. Where such a contract provides for indemnity to the assured against third party risks, the third party who is a stranger to the contract cannot enforce it himself against the insurer. Neither the general principles of law relating to contracts nor the common law give a third party a cause of action against the insurer. If a third party risk arises under the policy it is entirely a matter between the insurer and the insured governed by the terms of the policy. But section 96(1) of the Motor Vehicles Act casts a duty on the insurers to satisfy judgements against persons insured in respect of third party risk. After a judgement is obtained by a third party against the insured, the insurer is charged with the obligation to satisfy it to the extent of the cover under the terms of the Policy as if the insurer were a judgement-debtor in respect of the liability. This is a kind of subrogation not of course in the strict legal sense of the term brought about by operation of the statutory provision by which the 3rd party who has obtained a judgement against the insured gets into his shoes, as it were to work out his right of indemnity against the insurer by placing on the insurer a corresponding liability to satisfy the judgement to the extent covered by his underwriting. For this purpose the insurer though in point of fact he is not so should be deemed to be a judgement-debtor. The conditions mentioned in sub-section (2) of section 96 should be fulfilled as one of the objects of which is to enable the insurer to ask for being made a party so that he may defend the action by the third party against the insured. This sub-section also enumerates the grounds on which the insurer may defend himself. The section further provides that no insurer who has had notice under section 95(2) is entitled to avoid his liability to third party otherwise than in the manner provided for in sub-section (2).
20. Anantanarayanan, J., in Madras Motor Insurance Co., Ltd. v. Mohamed Mustafa Badsha held the view that whether or not there was a term in the policy touching the matter, the sale by the insured of his car during the currency of the policy did not or would not in law operate to put an end to the Policy and enable the insurer to avoid his liability against third party risks. The Head Note which accurately summarises his view reads:
“In view of the specific provision in section 96 of the Motor Vehicles Act it cannot be contended that a Policy of Insurance lapses the moment the insured parts with the ownership of the vehicle Even if the insurer has any ground which would entitle him to avoid the policy as against the insured, the insurer cannot escape the liability to pay the victim of an accident so long as the policy is current and valid. Sale of the vehicle is not a ground under the section to avoid a policy of insurance. Hence where the owner of a vehicle which is insured under the Act against the 3rd party risks sells the same to another but transfer of ownership or transfer of the Policy has not yet taken place and an accident occurs the insurance Company, cannot escape its liability under the Policy.”
21. Actually the finding in that case appears to be that there was no transfer of the car during the currency of the policy and on the date the accident took place and the observations of the learned Judge would therefore be obiter. In any event with respect, we are unable to share the view of the learned Judge. In our opinion, there is nothing in section 96 of the Motor Vehicles Act which warrants the view that a sale or transfer of an insured car by the insured during the currency of the policy does not terminate the policy. Outside the statutory provision when the motor car specified in the policy is the very subject-matter of the insurance, with its dis-appearance or the insured parting with it by sale or transfer of ownership the policy must necessarily lapse. After the insured has parted with his car, he has no longer any insurable interest to which the policy in his favour can relate and continue to have force. The basis of the contract of insurance is not merely the person in whose favour an insurance is effected but also the specified car to which the indemnity relates as will be clear from the details required of the car which are set out in the schedule to the policy. It is with reference to those details and the history of the vehicle and its owner including claims or no claims the premiums payable on the insurance is determined and the contract is formed. It follows therefore that in the absence of an express stipulation to the contrary in the policy the moment the insured parts with his car, the policy relating to it lapses because as we said the car is the subject-matter or the very foundation of the contract of insurance. Anantanarayanan, J., was evidently influenced by the words of section 96(1), namely,
“………… notwithstanding that the insurer may be entitled to avoid or cancel or may have avoided or cancelled the policy, the insurers shall subject to the provisions of this section pay to the person entitled to the benefit of the decree any sum not exceeding the sum assured payable thereunder as if he were the judgment-debtor……”
22. And by the conditions specified by section 96(2). We are clearly of opinion that neither the words above quoted from section 96(1) nor the conditions specified in sub-section (2) of section 96 bring about the result that a Policy of Motor Insurance will continue to operate and not lapse notwithstanding the fact that the insured during the currency of the policy has parted with the ownership of the, car to which the insurance relates. On the other hand section 96(1) itself presupposes and proceeds on the basis that there is a subsisting policy and the words in section 96(1) “being a liability covered by the terms of the Policy” are particularly noteworthy. It is true that where an insurer has been given notice of an action the grounds of his defence in the action are limited to those specified by sub-section (2) of section 96 and it is not open to an insurer to avoid liability under a policy on any other ground. But the continued ownership of the car with the insured is basic to the subsistence of the policy and once the subject matter of the policy is gone, so when parted with by the insured, the policy automatically lapses and there is nothing for the insurer to avoid it.
23. Shawcross on Motor Insurance (2nd Edition) at page 287 adverting to the circumstances in which insurers are entitled to avoid the policy says that the words “is entitled to” in the English section corresponding to section 96(1) of our Motor Vehicles Act are vital and is rightly of the view that they show that the English section has no application to a policy which has been automatically avoided as when the assured dies, becomes bankrupt or parts with the insured vehicle. In all these cases according to him, the policy comes to an end willy nilly and cannot be revived. section 102 of the Motor Vehicles Act states the effect of death of the insured in relation to motor insurance. If death occurs after the happening of an event giving rise to a claim under Chapter VIII of the Act, the cause of action survives against the estate of the insurer. If death of the insured occurs before the happening of such an event, then of course the policy ipso facto lapses and will be of no effect in respect of liabilities arising from accidents thereafter. The insolvency or winding up of an insured does not however appear to have a similar effect and terminate a contract of insurance on that account. But section 97(1) provides that if such an insured incurs liabilities to third parties, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything to the contrary in any provision of law, be transferred to and vest in the third party to whom the liability was so incurred. Rogerson v. Scottish Automobile and Gen. Insurance Co., Ltd. is a clear and direct authority that if the insured parts with ownership of insured car, the policy of insurance relating to it at once lapses. Lord Buckmaster in the House of Lords expressed his view:
“To me this policy depends upon the hypothesis that there is in fact an insured. When once the car which is the subject of this policy is sold, the owners' rights in respect of it cease and the policy so far as the car is concerned is at an end.”
24. The argument in that case partly turned on the language “instead of” in the policy in the context of the claimant there using a new car instead of an old one. But the decision of the House of Lords was rested on the broader view we have just extracted. This decision as we understand seems to have ever since been applied and followed by the English Courts. In Tattersall v. Drysdale, a clause in the policy extended the cover against third party risks to the temporary user by the insured of another car and during the continuance of the policy the insured sold the car covered by the policy the subject-matter of the insurance. The accident having occurred while the insured used another car he made a claim. Goddard, J., held:
“The policy insured the plaintiff in respect of the ownership and user of specified car and when he divested himself of his interest in that car the extension clause ceased to have effect.”
25. The learned Judge pointed out that the decisive factor in the decision of the House of Lords we have referred to was that the subject matter of the insurance was the specified car and that as the assured had parted with it, he no longer was interested in the policy. The learned Judge went on to observe:
“The true view in my judgment is that the policy insures the assured in respect of the ownership and user of a particular car, the premium being calculated as was found in Roger son's case, partly on value and partly on horse power…… To construe this policy otherwise would be to hold in effect that two distinct insurances were granted one in respect of the scheduled car, and another wholly irrespective of the ownership of any car.”
26. The same question again came before Goddard, J., in Peters v. General Accident and Life Assurance Corporation, Ltd., and he after reviewing the earlier cases reiterated:
“I am bound to hold that when Mr. Coomber parted with his car, his insurance qua that car lapsed and that there was no insurance.”
27. The interesting facts in that case are that after the insured had sold his car and handed over the Insurance Policy with the vehicle to the purchaser there was an accident with reference to which the plaintiff there obtained a judgement against the purchaser and later in an action sought to recover damages he had been awarded from the insurers of the vendor under the provisions of the Road Traffic Act, 1934. Lord Goddard dismissed the action holding that the insurance policy had automatically lapsed. In deciding these cases, the English Courts were not unaware of the provisions in the Road Traffic Act which is pari materia with and analogous to section 96(1) of the Motor Vehicles Act. We are therefore again with respect unable to agree with Anantanarayanan, J., that the law in this country in respect of the effect of a sale of an insured car upon the policy relating to it is different. Falshaw, J., of the Punjab High Court has held in Des Raj v. Concord of India Insurance Co., that a Motor Insurance Policy does not remain in force if there is a change of ownership of the car insured unless there is an agreement to the contrary in the policy. A Division Bench of the Madhya Pradesh High Court in Gyarsilal v. Sitacharan, has dissented from the reasoning of the Madras Motor Insurance Co., Ltd. v. Mohammed Mustafa Badsha, based on section 96 of the Motor Vehicles Act. On facts in the Madhya Pradesh case of course it proceeded on a ground of novation as to liability of the insurer to a third party.
28. On principle and authority, we hold that on the date of the accident in this case there was no policy in force so as to make the 3rd defendant the insurer liable to the plaintiff. The other findings of Ramakrishnan, J., have not been questioned before us. The appeal is dismissed but the cross-objections are allowed. The suit against the 3rd defendant will stand dismissed. No costs in any of them either here or below. The 1st defendant as L.R of the 2nd defendant will pay the court-fee due on the plaint and grounds of appeal from out of the estate of the 2nd defendant.
29. Appeal dismissed; Cross objections allowed.