Oriental Insurance Co. Limited vs Rajamani and Others

Somasundram, J.—This appeal has been preferred by the Oriental Insurance Company Limited, Coimbatore, against the award of the

Motor Accidents Claims Tribunal (Sub-Court), Coimbatore, in M.C.O.P. No. 200 of 1981. Respondents 1 to 5 herein are the claimants in

M.C.O.P. No. 200 of 1981. The sixth and the seventh respondents herein, who are the owner and driver respectively of the vehicle involved in the

accident, were respondents 1 and 2 in M.C.O.P. No. 200 of 1981 and the appellant-Insurance Company was the third respondent therein.

Respondents 1 to 5 filed M.C.O.P. No. 200 of 1981 u/s 110-A of the Motor Vehicles Act (hereinafter referred to as ''the Act'') against

respondents 6 and 7 and the appellant herein claiming payment of compensation in a sum of one lakh of rupees in respect of the death of one

Purushothaman, the husband of the first respondent, son of the second respondent and father of jninor respondents 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 respondents 1 to 5,

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 respondents 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 respondents 1 to 5 was aged about 32 years at the time of his death and was working in Gopalakrishana Mills, Ganapaths,

Coimbatore, drawing a salary of Rs. 650/- per month, besides an annual bonus of Rs. 2,000/ -. claiming that 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

responents 1 to 5 prayed that compensation in a sum of one lakh of rupees should be awarded to them.

The seventh respondent remained ex parte 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

6.10.1979 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 this 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

respondents 1 to 5 was excessive. In its first, counter, the appellant-Insurance Company resisted the claim of respondents 1 to 5 contending that

the vehicle bearing registration No. TNY 4629 was not insured with it. In its additional counter, the appellant pleaded at the sixth respondent had

sold the lorry TNY 4629 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 therefore. 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 respondents 1 to 5.

On a consideration of the oral as well as the documentary evidence, the Tribunal found that the accident that took place on 6.3.1980 resultingin

the death of Purushothaman was on account of the rash and negligent driving of the lorry TNY 4629 by the seventh respondent and respondents 1

to 5 were entitled to be paid compensation in a sum of one lakh of rupees, 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 respondents 1 to 5

and against respondents 6,7 and the appellant for payment of compensation in a sum of one lakh of rupees with interest of 6% per annum from the

date of the claim petition till the date of payment. Aggrieved by the award of the Tribunal holding that the appellant-Insurance Company is also

liable to pay the compensation amount to respondents 1 to 5, this appeal has been preferred by the Insurance Company questioning its liability to

pay the compensation to respondents 1 to 5.

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 Exhibit 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 the sale was completed the

moment delivery of possession of the lorry was effected and inasmuch 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.

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, especially 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 R.W. 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 Exhibit 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. R.W. 1 further stated that on the same day, the seventh

respondent signed and passed on a delivery-note Exhibit 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. R.W. 1 had also deposed that under Exhibit 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 Exhibit 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/- with two months from

the date Exhibit B-2. Exhibit B-2 has also referred to the taking delivery of the lorry TNY 4629 by the seventh respondent is a satisfactory

condition. The delivery-note marked as Exhibit 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 Exhibit B-2, marked as Exhibit B-4, shows that on 10.12.1979, the seventh respondent had paid to the

sixth respondent the balance of Rs. 5.000/- payable under Exhibit 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 Exhibit B-2 to B-4 was brought to the notice of the Court. In its absence, on the basis of Exhibit B-2 to

B-1 and the testimony of R.W. 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 of possession of the lorry was taken

by him from the sixth respondent on 5.10.1979. The Tribunal had taken the view that Exhibit 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 Exhibit B-2 to B-4 and on the available evidence, the Tribunal was in error in arriving at the conclusion that

Exhibit B-2 to B-4 had been brought about by the sixth respondent. The Tribunal had also found fault with Exhibits 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 paragraph 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 Exhibits 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

seventh respondent, by Exhibits B-2 to B-4, had an attempt to substantiate the plea so rais that 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 Exhibit 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 the accident, the sixth and the seventh

respondents would be liable, is not quite correct, as, change of registration u/s 31 of the Act is not a condition precedent for transfer of ownership,

A Division Bench of this Court in Hema Ramaswami Vs. K.M. Valarance Panjani and Others, laid down that change of registry u/s 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 Exhibits B-2 to B-4 and the evidence of R.W. 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.

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 4620 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 ExhibitB-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 appellant-Insurance Company

and that brought about a lapse of the policy under Exhibit B-l 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 fast ended upon the appellant-Insurance Company, learned Counsel

relied upon the decisions reported in M. Bhoopathy (Died) and Others Vs. M.S. Vijayalakshmi and Another, , Queensland Insurance Co., Ltd.

Vs. Rajalakshmi Ammal and Others, , Hema Ramaswami Vs. K.M. Valarance Panjani and Others, and Rangasamv v. Periammal 1990 1 L.W.

Reliance was placed by learned Counsel for the contesting respondents upon the decision in Dharman v. N.C. Srinivasan 1989 1 L. W. 315.

A brief reference to the decisions to which attention has been drawn may now be made. In Bhoopathy v. Vijayalakshmi 78 L.W. 643 : 1966 II

MLJ 466, the question arose regarding the effect of the transfer of a vehicle on the policy issued with reference to that vehicle by the insured. 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 carries 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 relates. Yet another Division Bench of this Court, in Queensland Insurance Co.,

Ltd. Vs. Rajalakshmi Ammal and Others, 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 him 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. Valarance Panjani 94 L.W. 144 : 1981 MLJ 182, 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 1990-1 L.W. 453, the question whether, on a transfer of a vehicle without intimating 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, on 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 content that Section 103-A of the Motor

Vehicles Act is relevant. There under 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. u/s 103(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 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 his 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 a particular vehicle, and under another wholly irrespective of the ownership of any vehicle....

Again at page 460, 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 u/s 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 Dharman v. N.C. Srinivasan 1989 1 L.W. 315, first sight, may appear to support the contention

of learned Counsel for the contesting respondents. However, a closed 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 1989-1

L.W. 315 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. Ltd. Vs. Captain Itbar Singh and Others, , the Supreme Court did not have any

occasion to consider the case of the 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 owners of the cars in those

cases were validly insured against third party risks and this is clear from the opening paragraph 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 u/s 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. Vs. Pessumal Dhanamal Aswani and Others, , the

question as to what should happen to the policy on transfer of the vehicle was not considered, but the decision returned 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 but 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 1989 1 L.W. 315 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 those circumstances,

the award of the Tribunal directing the appellant-Insurance Company to pay compensation to respondents 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, viz., the seventh respondent. Accordingly,

the Civil Miscellaneous Appeal is allowed and the award of the Tribunal is modified in that respondents 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.

During the pendency of the appeal, the appellant-Insurance Company had deposited s the entire compensation amount together with interest,

etc. pursuant to order passed by this Court in C.M.P. 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.