JUDGMENT B.J. Divan, C.J.

1. This matter has been placed before the Full Bench in pursuance of the following order passed by a Division Bench consisting one of us (A. D. Desai~ J-) and N. H. Bhatt, J. an October 14, 1977. The order is in these terms:

"Refer to Full Bench as the decision of this Court in ( 1974) 15 Cut LR 428 is admittedly toned down by the decision of the Supreme Court in AIR 1977 SC 1785 and the question raised is an important and arises in many pending cases"

The question that arose for consideration before the Division Bench consisting of J. B. Melita and S. H. Sheth, JJ. in Sakinabibi V. Cordhanbhai Prabhudas (1974) 15 Guj LR 428 was in connection with the Provisions of Section 95 (1) (b) read with Section 95 (2) of the Motor Vehicles Act (4 of 1939) and Rule 118 of the Motor Vehicles Rules framed under the Motor Vehicles Act. The same question was considered by the Supreme Court in Pushpabsi v. Ranjit G. & P CO, AIR 1977 SC 1735.

2. Section 42 of the Motor Vehicles Act (hereinafter referred to "the Act"), provides-

"No owner of a transport vehicle shall use or permit the use of the vehicle in any public place whether or not such vehicle is actually carrying any passenger or goods save in accordance with the conditions of a permit granted or countersigned by a Regional or state Transport Authority or the Commission authorizing the use of the vehicle in that place in the manner in which the vehicle in being used"

Section 94, provides that no person shall use except as a passenger or cause or allow any other person to use a motor vehicle in a public place, unless there is in force in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of Chapter VIII in which Sections 94 and 95 occur. A few definitions are required to be noted in this connection. Section 2 (8) defines "goods vehicle" to mean any motor vehicle constructed or adapted for use for the carriage of goods, or any motor vehicle not so constructed or adapted when used for the carriage of goods solely or in addition to passengers. Section 2 (25) defines "pubic service vehicle" to mean any motor vehicle used or adapted to be used for the carriage of passengers for hire, or reward, and includes a motor cab, contract carriage, and stage carriage. Section 2 (28) defines "public carrier" -to mean an owner of transport vehicle who transports or undertakes to transport goods, or any clan of goods, for another person at any time and in any public place for hire or reward, whether in pursuance of the terms of a contract or agreement or otherwise, and includes any person, body, association or company engaged in the business of carrying the goods of persons associated with that person, body, association or company for the purpose of having their goods transported. Section 2 (33) defines "transport vehicle" to mean a public service vehicle or a goods vehicle.

3. Section 95 (1) of the Act as amended by Act 56 of 1959 is in these terms :-

"In order to comply with the requirements of this Chapter, a policy of insurance must be a policy which

(a) issued by a person who is an authorized insurer or by a co-operative society allowed under Section 108 to transact the business of an insurer, and

(b) insures the person or classes of persons specified in the policy to the extent specified sub-sec (2)

(i) against any liability which may be incurred by him in respect of the death of or bodily injury to any person or damage to any property of a third party caused by or arising out of the use of the vehicle in a public place;

(ii) Against the death of or bodily injury to any passenger of a public service vehicle caused by or arising out of the use of the vehicle in a public Place;

Provided that a policy shall not be required-

(i) to cover liability in respect of the death, arising out of and in the course of his employment of the employee of a person insured by the policy or in respect of bodily injury sustained by such an employee arising out of and in the course of his employment other than a liability arising under the Workmen's Compensation Act, 1923, in respect of the death of, or bodily injury to, any such employee-

(a) engaged in driving the vehicle, or

(b) if it is a public service vehicle, engaged as a conductor of the vehicle or in examining tickets on the vehicle, or

(c)if it is a goods vehicle, being carried in the vehicle, or Except where the vehicle is a vehicle in which passengers are carried for hire or reward or by reason of or in pursuance of contract of employment, to cover liability in respect of the death of or bodily injury to persons being carried in or upon or entering or mounting or alighting from the vehicle at the time of the occurrence of the event out of which a claim arises. . . ."

Sub-section (2) of Section 95 provides-

"Subject to the proviso to sub-section (1), a policy of insurance shall cover any liability incurred in respect of any one accident up to the following limits, namely-

(a) where the vehicle is a goods vehicle, a limit of fifty thousand rupees in all, including the liabilities, if any, arising under the Workmen's Compensation Act 1923, in respect of the death of, or bodily injury to, employees (other than the driver), not exceeding six in number, being carried in the vehicle;

(b) where the vehicle is a vehicle in which passengers are carried for hire or reward or by reason of or in pursuance of a contract of employment-

(i) in respect of persons other than passengers carried for hire or reward, a limit of fifty thousand rupees in all;

(ii) in respect of passengers (1) a limit of fifty thousand rupees in all where the vehicle is registered to carry not more than thirty passengers;

(2) a limit of seventy five thousand rupees in all where the vehicle is registered to carry more than thirty but not more than sixty passengers;

(3) a limit of one lakh rupees in all where the vehicle is registered to carry more than sixty passengers; and (4) subject to the limits aforesaid, ten thousand rupees for each individual passenger where the vehicle is a motor cab, and five thousand rupees for each individual passenger in any other case".

4. Interpreting these provisions of section 95 and particularly the provisions of Section 95 (1) (b), the Division Bench consisting of J. B. Mehta and S. H. Sheth, JJ. in Sakinabibi's case ((1974) 15 Guj LR 428) (supra) held-

"Section 95 (1) (b) of the Motor Vehicles Act requires compulsory insurance of the third party risk in respect of death of or bodily injury to any person caused by or arising out of the vehicle in a public place. In view of the wide amplitude of the words "any person", the proviso carves out an exception in respect of employee's risk and in respect of passenger's risk. In the first proviso by engrafting an exception to an exception the employee risk has been required to be covered only in respect of certain employees mentioned therein in clauses (a), (b) and (c), i. e. the driver, conductor or the ticket examiner in a public service vehicle and an employee risk is covered only to the extent of the liability arising under the Workmen's Compensation Act in respect of the death of or bodily injury to the person injured". "The proviso (1)", according to the Division Bench. "Does not cover even in a goods vehicle employees of the owner or hirer of the goods who would be normally as a business proposition carried on such a goods vehicle. The goods vehicle is, under its permit under Rule 118 of the Motor Vehicles Rules, entitled to carry the owner or hirer or bona fide employee of the owner or hirer of the vehicle when he is so carried free of charge to the extent of limits specified. In case of such passengers, the relevant second proviso to Section 95 (1) provides a positive cover by providing liability being covered in respect of the death of or bodily injury to the person being carried in or upon the vehicle at the time of the occurrence of the event out of which the claim arises, if the condition laid down in the second proviso is fulfilled. In the second proviso, when the coverage is required in respect of passenger risk, the limitative condition is not by reference to the passengers but by reference to the vehicle. The limitative condition in terms states that the vehicle must satisfy the test by answering the statutory description, and it is not the passenger who is to answer the statutory description. If the vehicle is a vehicle which is one, in which passengers are carried, for hire or reward or by reason of or in pursuance of a contract of employment, such vehicle must have passenger's risk covered by compulsory insurance policy for the third party risk, irrespective of the fact as to what is the class of the passenger who was carried in or upon such vehicle at the time of the occurrence of the event which gives rise to the claim of compensation. Where, therefore, persons are thus normally carried by a goods vehicle as passengers when they ape lawfully permitted even under Rule 118, it would be difficult to hold that such goods vehicle would not be required to be compulsorily insured so far as such passengers carried by it are concerned". "The limitative words", according to the Division Bench, "would hardly be satisfied in the case of passengers who have been given lift by way of special kindness, or if casual solitary use is made of the vehicle for carrying a passenger, for some small reward whether by way of petrol charges or otherwise. Where, however, carriage of passengers by vehicle is as a business proposition or business exigencies or business reasons require carriage of these passengers by these vehicles, the legislature has rightly made insurance coverage compulsory for such passengers even in a commercial vehicle".

The Division Bench held

"Once the vehicle is a vehicle which has been earning some kind of reward and is carrying these persons as a business proposition, the vehicle would satisfy the statutory test. Once the Act lays down the compulsory insurance coverage for the vehicle and when the policy in terms states that it has covered all the risk which is required to be covered under Section 95 of the Act, it is obvious that the vehicle is compulsorily insured as required under the Act."

According to the Division Bench-

"if the statutory test is by way of a limitation as to the character of the vehicle which must fulfill this statutory test, it must be held that the present commercial vehicle which was always used to carry owner's or hirer's goods where passengers would be normally carried as permitted tinder Rule 118, was one satisfying the statutory test"

According to the Division Bench, the test to be applied for the purpose of Section 95 (1) (b) and the proviso to sub-section (1) of Section 95 was, what can be called the business test in the light of proviso to subsection (1) and the vehicle in the case of goods vehicle was to be considered as covered by risk if under the terms of coverage, it was permitted to carry passengers even in the light of Rule 118. In Sakinabibi's case (supra), therefore, business test which was adopted by the Division Bench as culled out from the decision of similar case in England was held to be the test applicable in that case.

5. The question is whether that business test is applicable in the light of the decision of the Supreme Court in Pushpabai's case (AIR 1977 SC 1735) (supra). In Pushpabai's case (supra), Kailasam, J. speaking for the Supreme Court observed in para 19 at page 1745:

"As Section 95 of the Motor Vehicles Act, 1939, as amended by Act 56 of 1969 is based on the English Act it is useful to refer to that ' Neither the Road Traffic Act, 1960 nor the earlier 1930 Act required the users of motor vehicles to be insured in respect of liability for death or bodily injury to passengers in the vehicle being used except a vehicle in which passengers were carried for hire or reward or by reason of or in pursuance of a contract of employment. In fact, Section 208 (4) of the 1960 Act provided that the policy shall not be required to cover liability in respect of death of or bodily injury to persons being carried in or upon, or entering or getting on to or alighting from, the vehicle at the time of the occurrence of the event out of which the claims arise. The provisions of the english act being explicit the risk to passengers is not covered by the insurance policy. The provisions under the English Road Traffic Act, 1960, were introduced by the. amendment of Section 95 of the Indian Motor Vehicles Act. The law as regards general exclusion of passengers is stated in Halsbury's Laws of England, Third Edition, Vol. 22, at page 363, para 755 as follows:

'Subject to certain exceptions a policy is not required to cover liability in respect of the death of or bodily injury to, a person being carried in or upon, or entering or getting into or alighting from, the vehicle at the time of the occurrence of the event out of which the claim arises'.

It is unnecessary to refer to the subsequent development of the English law and as the subsequent changes have not been adopted in the Indian Statute. Suffice it to say that the Motor Vehicle (Passenger Insurance) Act, 1971, made insurance cover for passenger liability compulsory by repealing paragraph (a) and the proviso of S. 203 (4). But this Act was repealed by Road Traffic Act 1972 though under See. 145 of 1972 Act the coming into force of the provisions of Act, 1971 covering passenger liability was delayed until December 1, 1972".

Sections 95 (a) and 95 (b) 0) of the Motor Vehicles Act adopted the provisions of the English Road Traffic Act, 1960, and excluded the liability of the insurance company regarding the risk to the passengers. Section 95 provides that a policy of insurance must be a policy which insures the persons against any liability which may be incurred by him in respect of death or bodily injury to 'any person or damage to any property of a third party caused by or arising out of the use of the vehicle in a public place. The plea that the words 'third party" are wide enough to cover all persons except the person and the insured is negatived as the insurance cover is not available to the passengers made clear by the proviso to sub-section which provides that a policy shall not be required ....

Then, clause (ii) of the proviso is set out.

The Supreme Court proceeds-

"Therefore, it is not required that a policy of insurance should cover risk to the passengers who are not carried for hire or reward. As under Section 95 the risk to a, passenger in a vehicle who is not carried for hire or reward is not required to be insured the plea of the counsel for the insurance company will have to be accepted and the Insurance company held not liable under the requirements of the Motor Vehicles Act."

6. In first appeals Nos. 544 to 50, 5V, 583 and 584 of 1973, all disposed of by a common judgment dated August 22, 1977 (reported in AIR 1978 Gul 153) by a Division Bench consisting of J. B. Mehta, Acting Chief Justice and P. D. Desai, J., the two decisions one in Saldnabibfs case ((1974) 15 Guj LE 428) (supra) and the other in Pushpabai's case (AIR 1977 SC 1735) (supra) were considered by the Division Bench. In the course of the judgment, J. B. Mehta, Acting Chief justice, observed in the light of the decision of the Supreme Court in Pushpabai's case (supra) (at p. 156):

"The statutory language of the proviso (ii) in Section 95 (1) is now found by their Lordships to be explicit and the statutory language itself gives the point of time in the very exception which is laid down that a policy shall not be required to cover liability in respect of the death of or bodily injury to persons being carried in or upon or entering or mounting or alighting from the vehicle at the time of the occurrence of the event out of which the claim arises. When the coverage is given by engrafting an exception on the exception by the opening words of this proviso 'except where the vehicle is a vehicle in which passengers are carried for hire or reward or by reason of or in pursuance of a contract of employment, the relevant time contemplated in the exception would have to be borne in mind, also for the purposes of that exception to the exception which gives the positive coverage. It should also be borne in mind that even the "public service vehicle" definition in Section 2 (25) 'in our Act is as any motor vehicle used or adapted to be used for the carriage of passengers for hire or reward and including a motor cab, contract carriage, and stage carriage, which has no notion of business therein so as to in dictate that the vehicle would satisfy this test only when the carriage of passengers was for hire or reward by way of a business proposition.

The interpretation of this definition even in the context of a penal liability was by, adopting this user test in the decision in State Of Mysore v. Syed Ibrahim., AIR 1907 SC 1424 ..........

Therefore, even in the context of penal liability in our country this user test is applied and a motor vehicle occasionally used for carrying passengers for hire or reward is regarded when so used as a public service vehicle ...... The positive coverage is given by this exception "where the vehicle is a vehicle in which passengers are carried for hire or reward or by reason of or in pursuance of a contract of employment" and therefore, the vehicle would satisfy the user test once the passengers fulfill this necessary condition of being carried for hire or reward or by reason of or in pursuance of a contract of employment on this particular occasion at the time of the occurrence of the event out of which the claim arises".

Finally, summing up the effect of the decision in Pushpabai's case (supra) J. B. Mehta, Acting C. J. observed (at p. 157):-

"In view of these considerations it is clear that after the legal position is now settled by the Supreme Court, we can no longer failed on the aforesaid business test which was adopted by us in the aforesaid decision and relying upon that business test which the vehicle must satisfy we had contemplated its further extension as was done in England that if the vehicle satisfied this statutory business test it was immaterial whether on that particular occasion who was carried, a passenger for hire or reward or even a person carried free of charge. If the relevant test which is now evolved for the passenger risk is that the passenger must be one carried for hire or reward or by reason of or in pursuance of a contract of employment, which would automatically fulfill the condition laid down in the exception that the vehicle is a vehicle in which passengers are carried for hire or reward or by reason of or in pursuance of a contract of employment, on that particular occasion at the time of the occurrence of the event out of which the claim arises, it is obvious that the risk of such a passenger who was given a free lift and who was not carried for any hire or reward or by reason of or in pursuance of a contract of employment would not be required to be covered in view of the aforesaid settled legal position. This being ultimately a contract of indemnity, if the policy of insurance is not compulsory, the Insurance company could not be hold liable when it is not statutorily bound to cover this passenger risk of free passengers and when voluntarily it has not given any extra coverage. Thus, J. B. Makta, Acting Chief justice who delivered the principal judgment in Sakinabibi's case (supra) has himself pointed out in the subsequent decision in first appeal No. 544 of 1973 and other matters decided in August 1977 that the test which was applied in Sakinabibi's case (supra) no longer applies for the purpose of finding out the liability of the insurer as to whether at the time when the event occurred out of which the claim arises, the vehicle was a vehicle in which passengers are carried for hire or reward or whether the passengers are carried in the vehicle by reason of or in pursuance of a contract of employment on that particular occasion at the time of occurrence of the event. It is while applying this test that ultimately, as pointed out by the Supreme Court, the insurer's liability will have to be judged and if a particular passenger in fact is not a passenger for hire or reward, then the policy would not cover the risk arising out of death or bodily injury to such passenger. In all cases where the policy of insurance covers risk under Section 95 of the Act or what is usually known as Act policy, the risk to the passengers who are not carried for hire or reward would not be covered and the insurer will not be liable for death or bodily injury to passengers who are not carried either for hire or reward.

7. Before concluding the Judgment, we must point out that in innumerable cases allover the country, passengers are in fact carried for hire or reward by the driver of the vehicle or sometimes free lifts are given by the drivers of goods vehicle or public service vehicle and if an event occurs which gives rise to a claim against the owner of the vehicle and against the insurer, such passengers who -are not earned for hire or reward would have nothing to fall back upon except the claim against the owner of the vehicle. The practice of carrying such passengers is fairly widespread and, therefore, it is desirable that the legislature by suitable amendment makes s, provision for covering all risks of injuries to inch passengers as well.

8. We, therefore, answer the question referred to us as follows:-

The decision in Sakinabibi's case, (1974) 15 Cuj LR 428 is toned down, to the extent we have indicated in our judgment above, by the decision of the Supreme Court in Pushpabai's case, AIR 1977 SC 1735 and in the fight of that decision, it is obvious that so far as the policy contemplated by Section 95 (1) (b) is concerned, it does not cover the risks to (A) persons other than those who were carried for hire or reward at the time of occurrence of event which gives rise to the claim against the insurer and (B) passengers other than those who were bona fide employees of the owner or hirer of the vehicle not exceeding six in number, carried in pursuance of or by reason of a contract of employment.

9. We wish to make it clear that nothing that we have stated in the course of this judgment should be considered to affect the liability in respect of six bona fide employees of the owner or hirer of the vehicle and the provisions of Section 95 (1) (a). We are not concerned in the course of this judgment with any provisions of Section 95 (2) and the extent of liability and we are concerned with this whether the business test which was evolved by the Division Bench in Sakinabibi's case (1974-15 Guj LR 428) (supra) is still good law looking to the decision in Pushpabai's case (AIR 1977 SC 1735) (supra).

10. The matter will now go back before a Division Bench for disposal of the first appeal in the light of what we have stated hereinabove.

11. Order accordingly.