CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1043-1044 of 1963. Appeals by special leave from the judgment and decree dated April 8, 1963 of the Bombay High Court in Appeals Nos. 10 and 11 of 1962. S.T. Desai, V. N. Thakar, J. B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the appellant (in both the appeals). G.S. Pathak, 0. P. Malhotra and 1. N. Shroff, for respondent No. 1 (in both the appeals). V.J. Merchant, for respondents Nos. 2 and 4 to 7 (in C.A. No. 1043/1963). April 24, 1964. The Judgment of the Court was delivered by RAGHUBAR DAYAL, J.-These appeals, by special leave, arise in the following circumstances: S. N. Asnani owned Chevrolet Car bearing registered No. AA 4431. He insured it with the New Asiatic Insurance Co. Ltd., hereinafter referred to as the company, under a policy dated November 26, 1957. Asnani permitted Pessumal Dhanamal Aswani, hereinafter called Pessumal, to drive that car. When Pessumal was driving the car with Daooji Radhamohan Meherotra and Murli Dholandas in the car, the car met with an accident as a result of which Meherotra died and Murli received injuries. Pessumal himself owned a Pontiac car which had been insured with the Indian Trade & General Insurance Co. Ltd., under policy No. Bombay P.C. 42733-2, dated November 18, 1957. The heirs of Meherotra instituted suit no.70 of 1959 against Pessumal for the recovery of Rs. 2,50,000/- by way of damages with interest. Murli instituted suit no. 71 of 1959 against Pessumal to recover Rs. 1,50,000/- by way of damages. Notices under s. 96(2) of the Motor Vehicles Act, 1939 (Act IV of 1939), hereinafter called the Act, were issued to the New Asiatic Insurance Co, Ltd. The notice was given to the company as the defendant’s liability to third parties had been. insured with it under its policy no. MV/4564. The company then took out Chamber Summons and it was contended that notice under s. 96(2) of the Act was bad in law and should be set aside and that the company was not liable to satisfy any judgment which might be passed in the suit against the defendant. Alternatively, it was prayed that the company be added as a party defendant to the suit and/or be authorised to defend the suit in the name of the defendant. Tarkunde J., held the notice issued to the company in the suits under s. 96(2) of , the Act, to be bad in law and, accordingly, set them aside. The plaintiffs then filed Letters Patent Appeals which were allowed and the Chamber Summonses were dismissed. It was directed that the trial Judge would hear the alternative prayers in the Chamber Summonses and make the necessary orders, It is against this order in each of the appeals that the company has preferred these appeals, after obtaining special leave. To appreciate the contentions of the parties in these appeals, reference may be made to certain provisions in the two policies. The various provisions in the two policies are identical in matters affecting the question for determination before us. We, therefore, set out the relevant provisions from the policy issued by the company and would refer to differences, if any, at the proper place. The policy is described as ’Private Car (Comprehensive Policy)’. The policy issued by the other company does not so describe it, but it is also a Comprehensive Policy as the premium charged is on that basis. The policy insures, under Section I against loss or damage, under Section II against liability to third parties and under Section III against liability for medical expenses. Thereafter, follow the general exceptions and conditions. Para 1 of Section II indemnifies the insured, i.e. Asnani who effected the policy, in the event of accident caused by or arising out of the use of the motor car, against all sums which he may become legally liable to pay in respect of death or of bodily injury to any person. Paras 3 and 4, generally known as ’Other drivers’ ’Extension Clause’ and ’Other Vehicles Extension Clause’ respectively, are material and are set out in full:
"3. In terms of and subject to the limitations
of the indemnity which is granted by this
section to the Insured the Company will
indemnify any driver who is driving the Motor
Car on the Insured’s order or with his
permission provided that such Driver: -
(a)is not entitled to indemnity under any
other policy.
(b)shall as though he were the Insured
observe, fulfil and be subject to the terms,
exceptions and conditions of the policy in so
far as they can apply.
4. In terms of and subject to the
limitations of the indemnity which is granted
by this Section in connection with the Motor
Car the Company will indemnity which is
granted by this Section in conPrivate Motor
Car (but not a Motor Cycle) not belonging to
him and not hired to him under a Hire Purchase
Agreement". Under the heading ’Avoidance of certain terms and right of recovery’, the policy states:-
"Nothing in this Policy or any endorsement
hereon shall affect the right of any person
indemnified by this Policy or any other person
to recover an amount under or by virtue of the
provisions of the Motor Vehicles Act, 1939,
section 96.
But the Insured shall repay to the Company all
sums paid by the Company which the Company
would not have been liable to pay but for the
said provisions." Condition 6 reads:
"6. If at the time any claim arises under this
Policy there is any other existing insurance
covering the same loss damage or liability the
Company shall not be liable to pay or
contribute more than its rateable proportion
of any loss damage compensation costs or
expense. Provided always that nothing in this
Condition shall impose on the Company any
liability from which but for this Condition it
would have been relieved under proviso (a) of
Section II-3 of this Policy". The Schedule to the policy mentions the limitations as to use and under heading ’Driver’ notes
(a)Any person: -
(b)The insured may also drive a motor car
not belonging to him and not hired to him
under a Hire Purchase Agreement.
Provided that the person driving holds a
licence to drive the Motor Car or has held and
is not disqualified for holding or obtaining
such a licence". At the end of the Schedule is an important notice which reads:
"The insured is not indemnified if the Vehicle
is used or driven otherwise than in accordance
with this Schedule. Any payment made by the
Company by reason of wider terms appearing in
the Certificate in order to comply with Motor
Vehicles Act 1939 is recoverable from the
Insured. See the clause headed ’Avoidance of
certain terms and right of recovery’." The contention for the appellant is that in view of para 4 of Pessumal’s policy issued by the other company, Pessumal was indemnified against any liability incurred by him whilst personally driving a private motor car not belonging to him and not hired to him under a Hire Purchase Agreement, and that, therefore, lie was not included among the persons indemnified in para 3 of the policy it had issued to Asnani on account of proviso (a) to para 3 which reads: "provided that such driver is not entitled to indemnity under any other policy". This contention is met by the respondent on the ground that this proviso is not a limitation on the class of persons indemnified under para 3, that class being the drivers driving the Chevrolet car insured under the policy, but merely amounted to a condition affecting the liability of the company vis a vis the driver who was entitled to indemnity under any other policy. The question thus reduces itself to the determination of whether Pessumal comes within the persons indemnified in para 3 of the policy issued by the company. We may now set out the relevant provisions of the Act which have a bearing on the contention between the parties. Chapter VIII of the Act provides for insurance of motor vehicles against third party risks. Section 93 defines the expressions ’authorised insured’, ’certificate of insurance’ and reciprocating country’. The relevant portions of the various sections are:
"94. (1). 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
this Chapter. Explanation-A person driving a motor vehicle merely as a paid employee, while there is in force in relation to the use of the vehicle no such policy as is required by this subsection, shall not be deemed to act in contravention of the sub-section unless he knows or has reason to believe that there is no such policy in force.
(2) Sub-section (1) shall not apply to any
vehicle owned by the Central Government or a
State Government and used for Government
purposes unconnected with any commercial
enterprise.
(3) The appropriate Government may. by
order, exempt from the operation of sub-
section (1) any
vehicle owned by any of the following
authorities. namely: -
Provided that no such order shall be
made in relation
to any such authority unless a fund has been
established and is maintained by that
authority in accordance with the rules made in
that behalf under this Act for meeting any
liability arising out of the use of any
vehicle of that authority which that authority
or any person in its employment may incur to
third parties.
95. (1) In order to comply with the
requirements of this Chapter, a policy of
insurance must be a policy which-
(a) is issued by a person who is an
authorised 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 person
specified in the policy to the extent
specified in sub-section (2) against any
liability which may be incurred by him or them
in respect of the death of or bodily injury to
any person caused by or arising out of the use
of the vehicle in a public place:
(4) A policy shall be of no effect for the
purposes of this Chapter unless and until
there is issued by the insurer in favour of
the person by whom the policy is effected a
certificate of insurance in the prescribed
form and containing the prescribed particulars
of any conditions subject to which the policy
is issued and of any other prescribed matters;
and different forms, particulars and matters
may be prescribed in different cases,
(5) Notwithstanding anything elsewhere
contained in any law, a person issuing a
policy of insurance under this section shall
be liable to indemnify the person or classes
of person specified in the policy in respect
of any liability which the policy purports to
cover in the case of that person or those
classes of person.
96. (1). If, after a certificate of
insurance has been issued under subsection (4)
of section 95 in favour of the person by whom
a policy has been effected, judgment in
respect of any such liability
as is required to be covered by a policy under
clause (b) of sub-section (1) of section 95
(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
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, in respect
of the liability, together with any amount
payable in respect of costs and any sum
payable in respect of interest on that sum by
virtue of any enactment relating to interest
on judgments.
(2) No sum shall be payable by an insurer
under sub section (1) in respect of any
judgment unless before or after the
commencement of the proceedings in which the
judgment is given the insurer had notice
through the Court of the bringing of the
proceedings, or in respect of any judgment so
long as execution is stayed thereon pending an
appeal; and an insurer to whom notice of the
bringing of any such proceedings is so given
shall be entitled to be made a party thereto
and to defend the action on any of the
following grounds, namely
(3)Where a certificate of insurance has
been issued under sub-section (4) of section
95 to the person by whom a policy has been
effected, so much of the policy as purports to
restrict the insurance of the persons insured
thereby by reference to any conditions other
than those in clause (b) of subsection (2)
shall, as respects such liabilities as are
required to be covered by a policy under
clause (b) of sub-section (1) of section 95,
be of no effect :
Provided that any sum paid by the insurer in
or towards the discharge of any liability of
any person which is covered by the policy by
virtue only of this sub-section shall be
recoverable by the insurer from that person.
(4) If the amount which an insurer becomes
liable under this section to pay in respect of
a liability incurred by a person insured by a
policy exceeds the amount for which the
insurer would apart from the provisions of
this section be liable under
the policy in respect of that liability, the
insure shall be entitled to recover the excess
from that person
(6)No insurer to whom the notice referred
to in subsection (2) or sub-section (2A) has
been given shall be entitled to avoid his
liability to any person en titled to the
benefit of any such judgment as is referred to
in sub-section (1) or sub-section (2A)
otherwise than in the manner provided for in
sub-section (2), or in the corresponding law
of the State of Jammu and Kashmir or of
the reciprocating country, as the case may
be". Chapter VIII of the Act, it appears from the heading, makes provision for insurance of the vehicle against third party risks, that is to say, its provisions ensure that third parties who suffer on account of the user of the motor vehicle would be also to get damages for injuries suffered and that their ability to get the damages will not be dependent on the financial condition of the driver of the vehicle whose user led to the causing of the injuries. The provisions have to be construed in such a manner as to ensure this object of the enactment. Section 94 prohibits, as a matter of necessity, for insurance against third-party risk, the use of a motor vehicle by any person unless there exists a policy of insurance in relation to the use of the vehicle by that particular person and the policy of insurance complies with the requirements of Chapter VIII. The policy must therefore provide insurance against any liability to third party incurred by that person when using that vehicle. The policy should therefore be with respect to that particular vehicle. It may, however, mention the person specifically or generally by specifying the class to which that person may belong, as it may not be possible to name specifically all the persons who may have to use the vehicle with the permission of the person owning the vehicle and effecting the policy of insurance. The policy of insurance contemplated by S. 94 therefore must be a policy by which a particular car is insured. Section 95 lays down the requirements which are to be complied with by the policy of insurance issued in relation to the use of a particular vehicle. They are: (1) the policy must specify the person or classes of person who are insured with respect to their liability to third-parties; (2) the policy must specify the extent of liability which must extend to the extent specified in sub-S. (2); and (3) the liability which be incurred by the specified person or classes of person in respect of death or bodily injury to any person caused by or arising out of the use of the vehicle insured in a public place. Sub-section (4) of s. 95 requires the issue of a certificate of insurance, in the prescribed form, to the person who effects the, policy. The form of the certificate prescribed by the Motor Vehicles Third Party Insurance Rules, 1946, requires the specification of persons or classes of persons entitled to drive.’ The authorised insurer is also to certify in the certificate that the policy to which the certificate relates, as well as the certificate of insurance, are issued in accordance with the provisions of Chapter VIII of the Act. Sub-section (5) of s. 95 makes the insurer liable to indemnify the person or classes of person specified in the policy in respect of any liability which the policy purports to cover in the case of that person or those classes of person. If the policy covers the insured for his liability to third parties, the insurer is bound to indemnify the person or classes of person specified in the policy The same is the effect of sub-s. (1) of s. 96 which provides that the insurer is bound to pay to the person entitled to the benefit of a decree he obtains in respect of any liability covered by the terms of the policy against any person insured by the policy irrespective of the fact whether the insurer was entitled to avoid or cancel or might have avoided or cancelled the policy. This means that once the insurer has issued a certificate of insurance in accordance with sub-s. (4) of s. 95 he has to satisfy any decree which a person receiving injuries from the use of the vehicle insured obtains against any person insured by the policy. He is however liable to satisfy the decree only when he has been served with a notice under sub-s. (2) of s. 96 about the proceedings in which the judgment was delivered. It is for this reason that a notice under sub-s. (2) of s. 96 was issued to the company and it is on account of the consequential liability in case the plaintiffs’ claim is decreed against Pessumal that the appellant challenged the correctness of the allegation that Pessumal was a person insured under the policy issued by it in respect of the Chevrolet car. It follows from a consideration of these various provisions of the Act-and this is not really disputed for the appellant-that if under the terms of the policy Pessumal can be said to be the Person insured under para 3, the company would be liable to -satisfy the decree if any passed against Pessumal. The whole question then is whether Pesumal comes within the terms of para 3 of Section II of the policy. Under this paragraph, the company indemnifies any person who is driving the motor-car on the insured’s order or with his permission. Pessumal was driving the car with the permission of Asnani who had effected the Policy and therefore the company undertook to indemnify Pessum’al in accordance with this provision of para 3. The appellant, however. contends that this provision should not be read as defining by itself the class of persons insured under it, in view of the further classification of this class of drivers by proviso (a). It is contended that only such drivers were indemnified as were not entitled to indemnity under any other policy and thus drivers who were entitled to indemnity under any other policy were taken out of the general class of drivers driving the car on the insured’s order or with his permission. We do not agree with this contention. The proviso is not really a classification of drivers but is a restriction on the right of the driver to recover any damages be had to pay, from the company. The driver who can ,get indemnity from any other company under any other policy is, under this contractual term, not to get indemnity from the company. The proviso thus, affects the question of indemnity between a particular driver and the company and has nothing to do with the liability which the driver has incurred to the third party for the injuries caused to it and against which liability- was provided by s. 94 of the Act and was affected by the policy issued by the company. The company, by agreeing with the person who affects the policy, to insure him against liability to third parties, takes upon itself the entire liability of the person effecting the insurance. It is open to the insurer not to extend this idemnity to the insured to other persons but if it extends it to other persons, it cannot restrict it vis a vis the right of the third party entitled to damages, to recover them from the insured, a right which is not disputed. A proviso meant to exempt certain persons from the general classification Will have to be related to considerations affecting it and is not to be related to such classified persons right to indemnity from any other insurer. In this connection reference may be made to proviso (b) which cannot in any case be a proviso relating to the classification of persons to be indemnified. It provides that tie person indemnified under para 3 will observe, fulfil and be subject to the terms, exceptions and conditions of the policy in so far as they can apply to him. We are further of opinion that clause (4) of Section II of Pessumal’s policy with the other company does not make that policy to be a policy within the meaning of s. 94 of the Act in relation to the Chevrolet car by whose user Pessumal incurred liabilities sought to be established in the two suits. The paragraph indemnifies the insured, i.e., Pessumal, whilst personally driving any private motor car. It does not indemnify him against the liability incurred when driving any particular car and therefore, in view of what we have said earlier, Pessumal’s policy cannot be a policy of insurance in relation to the Chevro. let car as required by s. 94 of the Act. Such a policy and any indemnity under it cannot be used for sub-classifying drivers specified in the policy ’of the company. The Act contemplates the possibility of the policy of insurance undertaking liability to third parties providing such a contract between the insurer and the insured, that is, the person who effected the policy, as would make the company entitled to recover the whole or part of the amount it has paid to the third party from the insured. The insurer thus acts as security for the third party with respect to its realising damages for the’ injuries suffered. but vis a vis the insured, the company does not undertake that liability or undertakes it to a limited extent. It is in view of such a possibility that various conditions are laid down in the policy. Such conditions, however, are -effective only between the insured and the company, and have to be ignored when considering the liability of the company to third parties. This is mentioned prominently in the policy itself and is mentioned under the heading ’Avoidance of certain terms and rights of recovery’, as well as in the form of ’An Important Notice’ in the Schedule to the policy. The avoidance clause says that nothing in the policy or any endorsement thereon shall affect the right of any person indemnified by the policy or any other person to recover an amount under or by virtue of the provisions of the Act. It also provides that the insured will repay to the company all sums paid by it which the company would not have been liable to pay but for the said provisions of the Act. The ’Important Notice’ mentions that any payment made by the company by reason of wider .terms appearing in the certificate in order to comply with the Act is recoverable from the insured, and refers to the avoidance clause. Thus the contract between the insured and the company may not provide for all the liabilities which the company has to undertake vis a vis the third parties, in view of the provisions of the Act. We are of opinion that once the company had undertaken liability to third parties incurred by the per sons specified in the policy, the third parties’ right to recover any amount under or by virtue of the provisions of the Act is not affected by any condition in the policy. Considering this aspect of the terms of the policy, it is reasonable to conclude that proviso (a) of para 3 of Section II is a mere condition affecting the rights of the insured who effected the policy and the persons to whom the cover of the policy was extended by the company, and does not come in the way of third parties’ claim against the company on account of its claim against a person specified in para 3 as one to whom cover of the policy was extended. It has been contended for the appellant that it was not incumbent on the owner of a car to take out a policy of insurance indemnifying himself or any person permitted to drive the car and that if he does not insure the car and uses it he runs the risk of prosecution under s. 125 of the Act. This is true, but has no relevant effect on the question for decision before us. Asnani did insure his car with respect to liability against third persons. We have to see whether the company, on account of undertaking that liability can be said to have insured Pessumal on account of his driving the car with the permission of Asnani. The same may be said about the other contention for the appellant that there is nothing in the Act which makes it compulsory for an insurer to insist that the owner of the car takes out a policy in the widest terms possible covering any person who drives the car with his permission. The company did agree under the policy to indemnify drivers who drove the car with the insured’s permission. The question is whether that undertaking covers Pessumal. Lastly, we may mention that the question about tie proper stage at which the question raised by the company in the Chamber notice is to be decided, came up for consideration at the hearing. We however do not propose to express any opinion on that point in this case. We are of opinion that the High Court rightly held that the company had insured Pessumal in view of para 3 of Section II of the policy and that it comes within the expression ’insurer’ in s. 96 of the Act. We therefore dismiss the appeals with costs of hearing one set. Appeals dismissed.