Oriental Insurance Company Ltd. v. Rajamani

1. This appeal has been preferred by the Oriental Insurance Company Limited, Coimbatore, against the award of Motor Accidents Claims Tribunal (Sub Court), Coimbatore, in M.C.O.P. No. 200 of 1981. Respondent Nos. 1 to 5 herein are the claimants in M.C.O.P. No. 200 of 1981. The sixth respondent and seventh respondent herein who are the owner and driver respectively of the vehicle involved in the accident, were respondent Nos. 1 and 2 in M.C.O.P. No. 200 of 1981 and the appellant insurance company was the third respondent therein. Respondent Nos. 1 to 5 filed M.C.O.P. No. 200 of 1981 under Section 110-A of the Motor Vehicles Act (hereinafter referred to as 'the Act') against respondent Nos. 6 and 7 and the appellant herein claiming payment of compensation in a sum of Rs. 1,00,000/- in respect of the death of one Purushothaman, the husband of the 1st respondent, son of the 2nd respondent and father of minor respondent Nos. 3 to 5 in a motor accident that took place on 6.3.1980 at about 7 p.m. on the Coimbatore-Sathy Road, opposite to Velan Theatre. According to the case of respondent Nos. 1 to 5 the deceased Purushothaman, at the time of the accident, was proceeding from east to west on cycle keeping to the left side of the road and his younger brother Balakrishnan was also proceeding on another cycle. At that time, according to the case of respondent Nos. 1 to 5, the lorry bearing registration No. TNY 4629 belonging to the sixth respondent and driven rashly and negligently by the seventh respondent came from east to west and dashed against Purushothaman and hit him and the lorry ran over the cyclist crushing his head and resulting in his instantaneous death. The deceased, according to respondent Nos. 1 to 5, was aged about 32 years at the time of his death and was working in Gopalakrishna Mills, Ganapathy, Coimbatore, drawing a salary of Rs. 650/- per month, besides an annual bonus of Rs. 2,000/-. Claiming that the deceased Purushothaman was hale and healthy and he would have lived for another 40 years and also worked in the mills till the completion of 58 years, but for the accident, respondent Nos. 1 to 5 prayed that compensation in a sum of Rs. 1,00,000/- should be awarded to them.

2. The seventh respondent remained ex pane before the Tribunal. In his counter, the sixth respondent put forward the plea that the ownership of the lorry bearing registration No. TNY 4629, which was involved in the accident, had been transferred to the seventh respondent as far back as 5.10.1979 and no liability for compensation in respect of the accident that took place on 6.3.1980 could be fastened on him. It was also the further plea of the sixth respondent that deceased Purushothaman lost his balance while riding his cycle and on account of that, the accident had taken place and he had thus contributed to the accident. The sixth respondent also contended that the quantum of compensation claimed by respondent Nos. 1 to 5 was excessive. In its first counter, the appellant insurance company resisted the claim of respondent Nos. 1 to 5 contending that the vehicle bearing registration No. TNY 4629 was not insured with it. In its additional counter the appellant pleaded that the sixth respondent had sold the lorry TNY 4629 to the seventh respondent on 5.10.1979, long prior to the accident that took place on 6.3.1980, and the transfer was not intimated to the insurance company either by the sixth respondent or even by the seventh respondent and on the date of the accident, the sixth respondent did not have any insurable interest in the vehicle which was involved in the accident so as to make the appellant liable therefor. The appellant also put forward the plea that the policy issued by it in favour of the sixth respondent covering the vehicle in question was a personal contract of indemnity, which lapsed upon the transfer of the lorry by the sixth respondent to the seventh respondent and the seventh respondent alone would be liable to answer the claim for compensation made by respondent Nos. 1 to 5.

3. On a consideration of the oral as well as the documentary evidence, the Claims Tribunal found that the accident that took place on 6.3.1980 resulting in the death of Purushothaman was on account of the rash and negligent driving of the lorry TNY 4629 by the seventh respondent and respondent Nos. 1 to 5 were entitled to be paid compensation in a sum of Rs. 1,00,000/- after disbelieving the case of transfer of the vehicle TNY 4629 on 5.10.1979 by the sixth respondent in favour of the seventh respondent. Ultimately, the Tribunal passed an award in favour of respondent Nos. 1 to 5 and against respondent Nos. 6 and 7, the appellant, for payment of compensation in a sum of Rs. 1,00,000/- with interest at 6 per cent per annum from the date of the claim petition till the dale of payment. Aggrieved by the award of the Tribunal holding that the appellant insurance company is also liable to pay the compensation amount to the respondent Nos. 1 to 5, this appeal has been preferred by the insurance company questioning its liability to pay the compensation to respondent Nos. 1 to 5.

4. Learned counsel for the appellant contended that the sixth respondent had sold and delivered possession of the lorry TNY 4629 to the seventh respondent on 5.10.1979, long prior to the accident that took place on 6.3.1980, and the transfer of the vehicle had not been intimated to the appellant and as a result thereof, on transfer of the vehicle, the policy issued by the appellant insurance company under Exh. B-1 lapsed and no liability for payment of compensation could be fixed on the appellant insurance company. Learned counsel further submitted that the sale of the lorry by the sixth respondent to the seventh respondent is governed by the provisions of Sale of Goods Act and sale was completed the moment delivery of possession of the lorry was effected and in as much as the lorry was sold and delivered by the sixth respondent to the seventh respondent on 5.10.1979 itself, the policy lapsed on that date and the insurance company was not liable to pay compensation in respect of the accident which had taken place subsequently on 6.3.1980. On the other hand, learned Counsel for the contesting respondents attempted to sustain the award of the Tribunal fastening liability on the appellant insurance company also by contending that the benefit of insurance cover issued by the appellant insurance company would continue to be available and that would justify the passing of the award in the manner done by the Tribunal.

5. Whether there was a sale of the vehicle TNY 4629 by the sixth respondent to the seventh respondent on 5.10.1979 itself has to be first considered. The case of the sixth respondent and the appellant insurance company was that even on 5.10.1979, the sixth respondent had sold the lorry to the seventh respondent and as possession of the lorry was also delivered to the seventh respondent by the sixth respondent on that day itself, the policy of insurance issued by the appellant insurance company to the sixth respondent lapsed upon the transfer of the lorry by the sixth respondent to the seventh respondent on 5.10.1979 and the benefit of the policy was no longer available, specially when no notice of transfer had been given to the appellant insurance company either by the sixth respondent or by the seventh respondent regarding the transfer of the vehicle. The sixth respondent had been examined as RW 1. He had stated in his evidence that on 5.10.1979, he sold the lorry TNY 4629 to the seventh respondent for a sum of Rs. 43,500/- under the agreement Exh. B-2 and that on the date of sale, he received Rs. 11,500/- from the seventh respondent and delivered possession of the lorry TNY 4629 to the seventh respondent. RW 1 further stated that on the same day, the seventh respondent signed and passed on a delivery-note Exh. B-3 to the effect that on 5.10.1979, he had purchased and taken delivery of the lorry TNY 4629 on 5.10.1979 itself. RW 1 had also deposed that under Exh. B-4, the seventh respondent had paid the balance of the sale price of Rs. 5,000/- after making the other adjustments, on 10.12.1979 and that he handed over all the documents relating to the lorry to the seventh respondent on 10.12.1979. The categoric evidence of RW 1 is to the effect that on the date of the accident, he was not the owner of the lorry TNY 4629, as he had sold it even on 5.10.1979. A perusal of Exh. B-2 shows that on 5.10.1979, the sixth respondent had sold the lorry TNY 4629 to the seventh respondent for Rs. 43,500/- after receiving cash of Rs. 11,500/- on that date and directing the seventh respondent to discharge a sum of Rs. 27,000/- outstanding on hire-purchase agreement and agreeing to receive the balance of Rs. 5,000/- within two months from the date of Exh. B-2. Exh. B-2 has also referred to the taking delivery of the lorry TNY 4629 by the seventh respondent in a satisfactory condition. The delivery-note marked as Exh. B-3 signed by the seventh respondent shows that he had taken delivery of the lorry on 5.10.1979 itself. The endorsement on the back of Exh. B-2, marked as Exh. B-4, shows that on 10.12.1979 the seventh respondent has paid to the sixth respondent the balance of Rs. 5,000/- payable under Exh. B-2 and had also received all the documents relating to the lorry TNY 4629 and the necessary forms duly signed for effecting a transfer of the relevant documents in the name of the seventh respondent. No evidence which would throw any doubt about the genuineness of Exhs. B-2 to B-4 was brought to the notice of the court. In its absence, on the basis of Exhs. B-2 to B-4 and the testimony of RW 1, it has to be held that even on 5.10.1979, the sixth respondent had sold and delivered the lorry TNY 4629 to the seventh respondent and ownership of the lorry had passed to the seventh respondent the moment delivery and possession of the lorry was taken by him from the sixth respondent on 5.10.1979. The Tribunal had taken the view that Exhs. B-2 to B-4 had been brought into existence by the sixth respondent with a view to avoid his liability to pay compensation. Earlier it had been pointed out that our attention had not been drawn to any evidence to doubt the genuineness of Exhs. B-2 to B-4 and on the available evidence, the Tribunal was in error in arriving at the conclusion that Exhs. B-2 to B-4 had been brought about by the sixth respondent. The Tribunal had also found fault with Exhs. B-2 to B-4 on the ground that the details found therein had not been specifically set out in the counter filed by the sixth respondent. On a reference to para 3 of the counter filed by the sixth respondent in M.C.O.P. 200 of 1981, it is seen that it had been clearly stated therein that the lorry TNY 4629 had been transferred to the seventh respondent herein as early as 5.10.1979 and, therefore, the sixth respondent cannot be held liable in respect of the accident that took place on 6.3.1980. The plea regarding the non-liability of the sixth respondent by reason of the transfer of ownership of the vehicle even on 5.10.1979 in favour of the seventh respondent had been pointedly raised and it was unnecessary at that stage for the sixth respondent to make any reference to the details of the evidence on which such a plea had been raised. In the course of the proceedings before the Tribunal, the sixth respondent had relied upon Exh. B-2 to B-4 to establish his case that there had been a transfer of ownership in the vehicle TNY 4629 even on 5.10.1979. A plea to the effect that there had been an earlier transfer even on 5.10.1979 having been already raised, the sixth respondent, by Exhs. B-2 to B-4, had only made an attempt to substantiate the plea so raised and it was unnecessary for the sixth respondent even at the stage of filing his counter to make a detailed reference to the evidence on the basis of which he sought to support the defence raised. The Tribunal, therefore, was in error in brushing aside Exhs. B-2 to B-4 on the ground that the details found therein had not been mentioned in the counter to M.C.O.P. No. 200 of 1981 filed by the sixth respondent. Again, the view taken by the Tribunal that because the registration certificate of the lorry TNY 4629 continued to stand in the name of the sixth respondent on the date of accident, the sixth and the seventh respondents would be liable, is not quite correct, as change of registration under Section 31 of the Act is not a condition precedent for transfer of ownership. A Division Bench of this Court in Hema Ramaswami v. K.M. Valarence Panjani 1981 ACJ 288 (Madras), laid down that change of registry under Section 31 of the Act was not a condition precedent for the transfer of ownership of the vehicle, but that provision merely imposed an obligation on the transferor and the transferee of the vehicle to notify the transfer, the non-compliance with which will not invalidate the transfer as such, which had already taken place. In view of Exhs. B-2 to B-4 and the evidence of RW 1 it has to be held that even on 5.10.1979, long prior to the date of the accident on 6.3.1980, the sixth respondent had sold and delivered possession of the lorry TNY 4629 to the seventh respondent and the moment possession of the lorry was delivered by the sixth respondent and taken by the seventh respondent the sale was complete and the ownership in the lorry passed from the sixth respondent to the seventh respondent. The resulting position, therefore, is that on the date when the accident took place, viz., 6.3.1980, the seventh respondent was the owner of the lorry.

6. It is not in dispute that the appellant insurance company had issued a policy covering the lorry TNY 4629, when it was owned by the sixth respondent. Equally, it is common ground that the transfer of the ownership of the vehicle TNY 4629 was not intimated either by the sixth respondent or even by the seventh respondent to the appellant insurance company. It is in the background of the transfer of the lorry TNY 4629 even on 5.10.1979, long prior to the accident on 6.3.1980, the liability of the appellant insurance company has to be considered. Admittedly, no policy of insurance was issued by. the appellant insurance company covering the lorry TNY 4629 owned by the seventh respondent. The only policy of insurance issued by the appellant insurance company was under Exh. B-1 and that too in favour of the sixth respondent, when he was the owner of the lorry TNY 4629. In support of the contention that the transfer of the vehicle was not intimated to the appellant insurance company and that brought about a lapse of the policy under Exh. B-1 and in the absence of the issue of a fresh policy of insurance by the appellant insurance company in favour of the seventh respondent, no liability could be fastened upon the appellant insurance company, learned Counsel relied upon the decisions reported in M. Bhoopathy v. M.S. Vijayalakshmi 1966 ACJ 1 (Madras), Queensland Insurance Co. Ltd. v. Rajalakshmi Ammal 1970 ACJ 104 (Madras), Hema Ramaswami v. KM. Valarence Panjani 1981 ACJ 288 (Madras) and Rangasamy v. Periammal 1991 ACJ 45 (Madras). Reliance was placed by learned Counsel for the contesting respondents upon the decision in Dharman v. N.C. Srinivasan .

7. A brief reference to the decisions to which attention has been drawn may now be made. In M. Bhoopathy v. M.S. Vijayalakshmi 1966 ACJ 1 (Madras), the question arose regarding the effect of the transfer of a vehicle on .the policy issued with reference to that vehicle by the insurer. In that case, the accident took place after the transfer of a motor vehicle, about which the insurance company was not intimated and the policy was also not renewed in the name of the transferee. The claim preferred against the insurance company was resisted on the ground that the policy taken by the transferor had lapsed and in the absence of a fresh policy, the insurance company could not be held liable. It was pointed out by a Division Bench of this Court 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 the car is the subject-matter or the foundation of the contract of insurance. The Division Bench also further held that neither Section 96(1) of the Act nor the conditions specified in Section 96(2) of the Act would bring about the result that a policy of a motor insurance will continue to operate and be effective and not lapse, notwithstanding the fact that the insured during the currency of the policy had parted with the ownership of the car to which the insurance related. Yet another Division Bench of this Court, in Queensland Insurance Co. Ltd. v. Rajalakshmi Ammal 1970 ACJ 104 (Madras), took the view that an insurance policy is a contract of personal indemnity and the insurer cannot be compelled to accept responsibility in respect of a third party quite unknown to it and as the insurance company had not issued a policy to the then owner of the vehicle at the time of the accident, it is not precluded from raising a plea in defence, other than those mentioned in Section 96(2) of the Act. The policy issued to the original owner, according to the Division Bench, lapsed on his parting with the property in the vehicle to the transferee. In Hema Ramaswami v. K.M. Valarence Panjani 1981 ACJ 288 (Madras), dealing with the identical question, another Division Bench of this Court held as follows:

...We are, therefore, of the view that in this case, the vehicle having been transferred long before the accident, the transferor and the insurance company, with which the vehicle had been insured by the first respondent, cannot be made liable in respect of the accident which admittedly took place long after the transfer while the vehicle was in possession and custody of the second respondent and it is the second respondent's driver who caused the accident by his rashness and negligence in driving the vehicle. We have to, therefore, sustain the dismissal of the claim as against the first and the third respondents by the Tribunal.

Recently, in Rangasamy v. Periammal 1991 ACJ 45 (Madras), the question whether, on a transfer of a vehicle without intimating the insurance company, the insurance company which issued the policy of insurance to the transferor is liable for an accident to a third party, came to be considered and it was observed as follows:

...A contract of insurance in relation to a vehicle is one of personal indemnity confined to the owner and the liability of the insurance company is determined by the terms and conditions of the policy by which the risk is covered. The liability under such a cover is with reference to a specified vehicle owned by the policy-holder and to cover the risk arising out of its use. Ordinarily, the cover is effective only so long as the person in whose favour the cover is issued retains the interest in the vehicle covered by the policy and on the cessation of such interest, the cover ceases to be effective. It is not the case of the appellant that there was any provision in the policy for transfer. On a transfer of the vehicle, there is no substitution of the transferee as the beneficiary of the personal indemnity. Under the provisions of the Motor Vehicles Act also, there is no statutory novation, as it were, in cases of transfer of a vehicle. When a vehicle under cover is sold by the then owner and the concerned insurance company is not informed about it or even requested to transfer the benefits of the cover in favour of the transferee, the insurance company is entitled to say that it knows nothing about the transferee, as he was not on its books and, therefore, so far as the insurance company is concerned, he is uninsured and there is no policy at all covering the vehicle in the name of the transferee. It is in this context that Section 103-A of the Motor Vehicles Act is relevant. Thereunder, the procedure for transfer of the policy of insurance relating to a vehicle on its sale is laid down and according to that, the transferor should apply to the insurance company for the transfer of the certificate of insurance and the policy in favour of the person to whom the vehicle is proposed to be transferred and if the insurer fails to intimate the insured or such other person within 15 days of the receipt of such application by the insurer, his refusal to transfer the certificate of insurance and the policy to the other person, the certificate of insurance and the policy described in the certificate shall be deemed to have been transferred in favour of the person to whom the vehicle is transferred effective from the date of its transfer. Under section 103-a(2), the insurer to whom such an application is made by the transferor may refuse to transfer the certificate of insurance and the policy under certain conditions. section 103-a(3) further provides that in the event of the refusal of the insurer to transfer the certificate of insurance and the policy in favour of the transferee to whom the vehicle has been transferred, the insurer is bound to refund to such transferee the amount, if any, under the terms of the policy, the insurer would have had to refund to the insured, for the unexpired term of such policy. The aforesaid provision outlining the procedure for securing the benefits of a policy issued in favour of the transferor clearly recognises the principle that a new assured cannot be thrust on the insurance company against its will. Except, therefore, in cases where an application has been made by the transferor for transfer of the certificate of insurance and the policy and the insurer has not intimated its refusal to transfer the certificate of insurance and the policy to the transferee within 15 days, the transfer of the certificate of insurance and the policy could be effected only by the insurance company agreeing to such a transfer, while it has also an option to refuse a transfer on the grounds specified in Section 103-A(2) of the Motor Vehicles Act. To generally view the transfer of a vehicle as carrying with it the benefit of the certificate of insurance and the policy would not be proper, as, in such an event, the insurance company should be regarded as having issued two policies agreeing to indemnify under one the transferor with reference to the particular vehicle, and under another wholly irrespective of the ownership of any vehicle...

Again, at page 53, it was observed as follows:

...Where the subsistence of a contract of insurance is itself questioned, it would not be a case contemplated by Section 96(2) at all, for, as pointed out earlier, those provisions proceed on the basis of the subsistence of a valid cover and the grounds available to the insurance company for avoiding its liability under such a cover. There is no question of avoidance of liability by the insurance company under a contract on one or more of the grounds enumerated under Section 96(2) of the Motor Vehicles Act, when there is no subsisting contract at all...

It is thus seen that the consistent view taken in a long line of decisions of Division Benches of this Court is to the effect that on transfer of the vehicle, the policy of insurance issued already in favour of the transferor lapsed and the insurance company cannot be fastened with liability. It becomes necessary now to refer to the decision in Dharman v. N.C. Srinivasan , which, at first sight, may appear to support the contention of learned Counsel for the contesting respondents. However, a closer scrutiny of the ratio as well as the decisions on which the ratio is based, would clearly establish that the decision had not only been rendered without reference to the several earlier Bench decisions of this Court, but also on a misunderstanding as well as misapplication of the two decisions of the Supreme Court. The decision in Dharman v. N.C. Srinivasan (supra) proceeded to hold that the defence of lapse of a policy on transfer of the vehicle cannot be raised within the framework of Section 96(2) of the Act. In so holding, apart from the omission to refer to the earlier Bench decisions, reliance had been placed upon two decisions of the Supreme Court which, in our considered view, do not have any application whatever at all to a situation relating to transfer of the vehicle and its effect on the policy of insurance, when the transfer is not intimated and the insurance company had not issued any fresh policy in favour of the transferee of the vehicle. In British India General Insurance Co. v. Capt. Itbar Singh 1958-65 ACJ 1 (SC), the Supreme Court did not have any occasion to consider the case of a transfer of a vehicle and its effect on the rights of the transferee of the vehicle under the terms of the policy issued by the insurance company in favour of the transferor. The decision had been rendered on the footing that the cars in those cases were validly insured against third party risks and this is clear from the opening para of the judgment. The question that arose was, whether the insurers, subsequently added as defendants in an action for damages, could be permitted to raise defences falling outside Section 96(2) of the Act. In other words, there were valid and operative policies for the vehicles at the time of the accident, but the attempt of the insurer to raise defences falling outside Section 96(2) of the Act was not permitted by the Supreme Court. The Supreme Court also pointed out that the insurance company cannot be permitted to raise defences to avoid liability, except on the grounds provided under Section 96(2) of the Act. This decision has, therefore, to be understood as clearly postulating the subsistence of an insurance policy and the avoidance of liability by the insurance company on the grounds enumerated in Section 96(2)(b) of the Act and cannot be pressed into service to claim compensation from the insurance company, even when there is no policy or cover. Again, in New Asiatic Insurance Co. Ltd. v. Pessumal Dhanamal Aswani 1958-65 ACJ 559 (SC), the question as to what should happen to the policy on transfer of the vehicle was not considered, but the decision turned upon the provisions in the policies regarding the liability of the insurance company. That decision, therefore, did not deal with a situation as in this case where the seventh respondent, who was the owner of the vehicle on the date of the accident, had not been issued a policy at all by the insurance company. It may be pointed out that where the subsistence of a contract of insurance is itself questioned, it would not be a case contemplated by Section 96(2) of the Act at all, for, as pointed out earlier, those provisions proceed on the basis of the subsistence of a valid cover and the grounds available to the insurance company for avoiding its liability under such a cover. On the facts and circumstances of this case, there is no question of avoidance of liability by the insurance company on one or more of the grounds set out in Section 96(2) of the Act, when, according to it, there is no contract of insurance at all. Considering the consistent and preponderant judicial opinion expressed in the decisions of this Court referred to earlier, the decision in Dharman v. N.C. Srinivasan , cannot be applied to the facts of this case. In view of the aforesaid well settled legal position and the factual situation that the lorry TNY 4629 had been transferred by the sixth respondent to the seventh respondent even on 5.10.1979, long prior to the date of the accident, and the transfer was not intimated either by the transferor or by the transferee to the appellant insurance company, the policy issued by the appellant insurance company to the sixth respondent lapsed on the transfer of the vehicle, and thereafter no liability could be fastened upon the appellant insurance company on the basis of such a lapsed policy. Under these circumstances, the award of the Tribunal directing the appellant insurance company to pay compensation to respondent Nos. 1 to 5 cannot be sustained and the liability to pay compensation would only be that of the owner of the vehicle on the date of the accident, that is, the seventh respondent. Accordingly, the Civil Miscellaneous Appeal is allowed and the award of the Tribunal is modified in that respondent Nos. 1 to 5 will be entitled to recover the compensation amount with interest as awarded by the Tribunal from the seventh respondent and the claim petition against the appellant insurance company and the sixth respondent will stand dismissed. There will be, however, no order as to costs.

8. During the pendency of the appeal the appellant insurance company had deposited the entire compensation amount together with interest, etc., pursuant to order passed by this Court in CMP No. 7757 of 1985 on 1.7.1985 and later, by the final orders passed in the same petition on 19.1.1987, the amounts deposited by the insurance company were directed to be kept in fixed deposit with Canara Bank, Nungambakkam Branch, Madras for a period of three years or till the disposal of the appeal, whichever is later. Since the appeal preferred by the insurance company has now been allowed, it follows that the appellant insurance company will be entitled to be paid back the amounts deposited by it pursuant to orders passed earlier.