# MANAGING DIRECTOR, K.S.R.T.C v. NEW INDIAASSURANCE CO. LTD. & ORS

- **Citation:** [2015] 10 S.C.R. 743
- **Court:** Supreme Court of India
- **Decided:** 2015
- **Case number:** Civil Appeal No. 5293 of2010
- **Bench:** H. L. Dattu, Arlin Mishra
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/managing-director-k-s-r-t-c-v-new-indiaassurance-co-ltd-ors-30256
- **Pages:** 28

## Headnote

Motor Vehicles Act, 1988- ss.2(30), 147, second proviso
A
8
to s.147(1) ands. 157-Accidentbythe bus given to Transport
Corporation under a lease agreement by the registered owner C
thereof - Liability to pay compensation - Whether on the
registered owner, the Corporation or the insurer - Held: In
view of the provisions of ss. 2(30), 147 and 157 the insurer
cannot escape the liability to pay the compensation - The 0
liability of the insurer continues notwithstanding the contract
of transfer of vehicle - Such contractual liability cannot be
said to be excluded by virtue of second proviso to Section
· 14 7 ( 1) - The Corporation being in actual control of the vehicle
would be liable to make the compensation - Even though,
E
the Corporation is treated as owner under Section 2(30), the
registered owner continues to remain liable as per terms and
conditions of lease agreement - Therefore, the registered
owner, insurer as well as the Corporation would be liable to
make the payment of compensation jointly and severally -
F
In view of the terms of the agreement, the Corporation can
recover the amount from the registered owner or insurer.
Insurance - Insurance Policy- Nature of- Held: Policy
of insurance is contractual obligation between the insured G
and the insurer.
Allowing the appeals, the Court
HELD: 1. No vehicle can be driven without insurance
as provided in Section 147 of Motor Vehicles Act, 1988. H
743
744
SUPREME COURT REPORTS
[2015] 10 S.C.R.
A The policy of insurance is contractual obligation between
the insured and the insurer. Clause 14 of lease agreement
between the appellant-Corporation and the owner
clearly stipulate that it shall be the liability of the owner
to provide the comprehensive insurance covers for all
B kind of accidental risks to the passengers, other persons/
property. The agreement is not shown to be illegal in any
manner whatsoever nor shown to be opposed to the
public policy. It has not been shown that while entering
into the aforesaid agreement of lease for hiring the buses,
C any of the provisions contained in the insurance policy
has been violated. It has also not been shown that owner
could not have given bus on hire as per any provision
of policy. It was the liability of the registered owner to
0 provide the bus regularly, to employ a driver, to make
the payment of salary to the driver and the driver was
required to be duly licensed and not disqualified as
provided in the agreement though buses were to be plied
on the routes as specified by the appellant-Corporation
E and hiring charges were required to be paid to the
registered owner. In the absence of any stipulation
prohibiting such an arrangement in the insurance policy,
in view of agreement of lease, the registered owner has
owned the liability to pay. The insurer cannot also escape
F the liability. [Paras 23 and 24] [757-B-D, F-H; 758-A]
2. It is also provided u/s. 157 of the Motor Vehicles
Act, 1988 that the certificate of insurance and the policy
described in the certificate shall be deemed to have been
G transferred in favour of the person to whom the motor
vehicle is transferred with effect from the date of its
transfer. Even if there is a transfer of the vehicle by sale,
the insurer cannot escape the liability as there is deemed
transfer of the certificate of insurance. In the present case
H it is not complete transfer of the vehicle, it has been given
MANAGING DIRECTOR, K.S.R.T.C. v. NEW INDIA
745
ASSURANCE CO. LTD.
on hire for which there is no prohibition and no condition/ A
policy of insurance as shown to prohibit plying of vehicle
on hire. The vehicle was not used for inconsistent
purpose. Thus, in the absence of any legal prohibition
and any violation of terms and conditions of the policy,
more so, in view of the provisions of Section 157 of the B
Act of 1988, the insurer cannot escape the liability. [Para
25] [758-B-E]
4. When the provisions of Section 147 and Section
157 are read together, it leaves no room for any doubt C
thatt

## Text

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[2015] 10 S.C.R. 743
MANAGING DIRECTOR, K.S.R.T.C.
v.
NEW INDIAASSURANCE CO. LTD. & ORS.
(Civil Appeal No. 5293 of2010 etc.)
OCTOBER 27 I 2015
[H. L. DATTU, CJI AND ARLIN MISHRA, J.]
Motor Vehicles Act, 1988- ss.2(30), 147, second proviso
A
8
to s.147(1) ands. 157-Accidentbythe bus given to Transport
Corporation under a lease agreement by the registered owner C
thereof - Liability to pay compensation - Whether on the
registered owner, the Corporation or the insurer - Held: In
view of the provisions of ss. 2(30), 147 and 157 the insurer
cannot escape the liability to pay the compensation - The 0
liability of the insurer continues notwithstanding the contract
of transfer of vehicle - Such contractual liability cannot be
said to be excluded by virtue of second proviso to Section
· 14 7 ( 1) - The Corporation being in actual control of the vehicle
would be liable to make the compensation - Even though,
E
the Corporation is treated as owner under Section 2(30), the
registered owner continues to remain liable as per terms and
conditions of lease agreement - Therefore, the registered
owner, insurer as well as the Corporation would be liable to
make the payment of compensation jointly and severally -
F
In view of the terms of the agreement, the Corporation can
recover the amount from the registered owner or insurer.
Insurance - Insurance Policy- Nature of- Held: Policy
of insurance is contractual obligation between the insured G
and the insurer.
Allowing the appeals, the Court
HELD: 1. No vehicle can be driven without insurance
as provided in Section 147 of Motor Vehicles Act, 1988. H
743
744
SUPREME COURT REPORTS
[2015] 10 S.C.R.
A The policy of insurance is contractual obligation between
the insured and the insurer. Clause 14 of lease agreement
between the appellant-Corporation and the owner
clearly stipulate that it shall be the liability of the owner
to provide the comprehensive insurance covers for all
B kind of accidental risks to the passengers, other persons/
property. The agreement is not shown to be illegal in any
manner whatsoever nor shown to be opposed to the
public policy. It has not been shown that while entering
into the aforesaid agreement of lease for hiring the buses,
C any of the provisions contained in the insurance policy
has been violated. It has also not been shown that owner
could not have given bus on hire as per any provision
of policy. It was the liability of the registered owner to
0 provide the bus regularly, to employ a driver, to make
the payment of salary to the driver and the driver was
required to be duly licensed and not disqualified as
provided in the agreement though buses were to be plied
on the routes as specified by the appellant-Corporation
E and hiring charges were required to be paid to the
registered owner. In the absence of any stipulation
prohibiting such an arrangement in the insurance policy,
in view of agreement of lease, the registered owner has
owned the liability to pay. The insurer cannot also escape
F the liability. [Paras 23 and 24] [757-B-D, F-H; 758-A]
2. It is also provided u/s. 157 of the Motor Vehicles
Act, 1988 that the certificate of insurance and the policy
described in the certificate shall be deemed to have been
G transferred in favour of the person to whom the motor
vehicle is transferred with effect from the date of its
transfer. Even if there is a transfer of the vehicle by sale,
the insurer cannot escape the liability as there is deemed
transfer of the certificate of insurance. In the present case
H it is not complete transfer of the vehicle, it has been given
MANAGING DIRECTOR, K.S.R.T.C. v. NEW INDIA
745
ASSURANCE CO. LTD.
on hire for which there is no prohibition and no condition/ A
policy of insurance as shown to prohibit plying of vehicle
on hire. The vehicle was not used for inconsistent
purpose. Thus, in the absence of any legal prohibition
and any violation of terms and conditions of the policy,
more so, in view of the provisions of Section 157 of the B
Act of 1988, the insurer cannot escape the liability. [Para
25] [758-B-E]
4. When the provisions of Section 147 and Section
157 are read together, it leaves no room for any doubt C
thatthore is deemed transfer of policy in case of transfer
of vehicle. Hence, liability of insurer continues
notwithstanding the contract of transfer of vehicle, such
contractual liability cannot be said to be excluded by
virtue of second proviso to Section 147(1) of 1988 Act. D
An agreement for lease on hire cannot be said to be
contract envisaged for exclusion under contractual
liability in second proviso to Section 147(1) of the Act of
1988. The High Court has erred in holding otherwise.
[Para 26] [758-F-H] [759-A]
E
5. The appellant-Corporation can also be treated as
owner for the purposes of Section 2(30) of the Act of 1988
plying the buses under lease agreement. The insurance
company admittedly has insured the vehicle and taken F
the requisite premium and it is not a case set up by the
insurer that intimation was not given to the insurance
company of the hirirrg arrangement. Even if the
intimation had not been given, the insurer cannot escape
the liability to indemnify as in the case of hiring of vehicle G
intimation is not required to be given. It is only in the
case of complete transfer of the vehicle when change of
registration particulars are required under Section 157
of the Act, an intimation has to be given by the transferee H
746
SUPREME COURT REPORTS
[2015] 10 S.C.R.
A for effecting necessary changes in the policy. Even
otherwise, that would be a ministerial act and the insurer
cannot escape the liability for that reason. When the
appellant-Corporation has become the owner of the
vehicle during the period it was on hire with it for the
B purpose of Section 2(30) of the 1988 Act by virtue of
provisions contained in Section 157 of the 1988Act, the
insurance policy shall be deemed to be transferred. As
such, insurer is liable to make indemnification and cannot
escape the liability so incurred by the appellantC Corporation. [Para 27] [759-B-F]
6. In the instant cases there are certain clauses which
indicate that ifthe appellant-Corporation has to make the
payment, it can recover the same from the owner out of
D the amount payable by it or from the amount payable by
the insurer to the owner. The appellant-Corporation being
in actual control of the vehicle would be liable to make
the compensation, however, it can recover the amount
from the registered owner or insurer, as the case may
E be. [Para 28] [764-B-C]
7. Even though, appellant-Corporation is treated as
owner. under Section 2(30) of the Act of 1988, the
registered owner continues to remain liable as per terms
F and conditions of lease agreement lawfully entered into
with appellant-Corporation. [Para 33] [770-C]
8. Therefore, the register~d owner, insurer as well
as appellant-Corporation would be liable to make the
G payment of compensation jointly and severally to the
claimants and the appellant-Corporation in terms of the
lease agreement entered into with the registered owner
would be entitled to recover th~ amount paid to the
claimants from the owner.as stipulated in the agreement
H or from the insurer. [Para 34] [770-D-E]
MANAGING DIRECTOR, K.S.R.T.C. v. NEW INDIA
747
ASSURANCE CO. LTD.
Rajasthan State Road Transport Corporation v.
A
Kai/ash Nath Kothari & Ors. 1997 (3) Suppl. SCR
724: (1997) 7 SCC 481; Godavari Finance
Company v. Dega/a Satyanarayanamma & Ors.
2008 (6) SCR 231: (2008) 5 sec 101; Uttar
Pradesh State Road Transport Corporation v.
B
Ku/sum & Ors. 2011 (15) SCR 618: (2011) 8 SCC
142; HDFC Bank Limited v. Reshma & Ors.
(2015) 3 sec 679 - relied on.
National Insurance Co. Ltd. v. Deepa Devi & Ors.
C
2001 (13) scR 134: (2008) 1 sec 414 -
distinguished.
Pushpa alias Leela & Ors. v. Shakuntala & Ors.·
2011 (1) SCR 334: (2011) 2 SCC 240- referred
to.
Case Law Reference
2011 (15) SCR 618
relied on.
Para 5
1997 (3) Suppl. SCR 724
relied on.
Para 6
2007 (13) SCR 134
distinguished. Para 23
2008 (6) SCR 231
relied on. ·
Para 30
(2015) 3 sec 679
relied on.
Para 32
2011 (1) SCR 334
referred to.
Para 32
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
5293 of2010.
D
E
F
From the Judgment and .Order dated 20.02.2009 of the· G
High Court of Karnataka at Bangalore passed in MFA No.
11440 of2007.
WITH
C.A. No. 6641 of2010.
H
748
SUPREME COURT REPORTS
[2015] 10 S.C.R.
A
S. N. BhatfortheAppellant.
B
Vishnu Mehra, Sakshi Mittal, Pramod Dayal, Shanthkumar
V. Mahale,Amith J., Rajesh Mahaleforthe Respondents.
The Judgment of the Court was delivered by
ARUN MISHRA, J. 1. The questions involved in the
appeals are whether in the wake of lease agreement entered
into by registered owner with Karnataka State Road Transport
Corporation (hereinafter referred to as the 'KSRTC'), the
C registered owner and insurer along with KSRTC can be
fastened with the liability to make payment to the claimants
and whether KSRTC can recover the amount from registered
owner and its entitlementto seek indemnification from insurer?
D
2. The facts giving rise to Civil Appeal No.5293 of 2010
reflect that the accident in question was caused by the bus
which was driven under the control of KSRTC. The bus was
owned by respondent no.2, T.M. Ganeshan, insured by the New
India Assurance Co. Ltd. Admittedly, an agreement dated
E 28.2.2002 was entered into between the KSRTC and owner
respondent no.2. The MACT, Tumkur, Karnataka on 25.6.2007
allowed the claim petition preferred by the claimants and
awarded a sum of Rs.4,09,000/-with interest@ 6% p.a.
F
3. In view of the agreement between KSRTC and the
owner of the bus, the liability was fastened upon the owner
and the insurer of the vehicle jointly and severally to make the
payment of compensation, not on KSRTC. Aggrieved thereby,
the insurer preferred .an appeal before the High Court of
G · Karnataka. The same has been allowed by the impugned
judgment and order dated 20.2.2009. The High Court has
allowed the appeal filed by the insurer and held that the liability
to make the payment of compensation is that of KSRTC alone.
H Aggrieved thereby, the KSRTC has come up in the appeal
before us.
MANAGING DIRECTOR, K.S.R.T.C. v. NEW INDIA
749 .
ASSURANCE CO. LTD. [ARUN MISHRA, J.]
4. In Civil Appeal No.6641 of 2010, the bus was plied A
similarly on hire agreement by the KSRTC. The Claims
Tribunal has fastened the liability jointly and severally upon the
KSRTC and upon Internal Security Fund, Bangalore.Aggrieved
thereby, the appeal was preferred in the High Court and the
same has been dismissed. Hence, Civil Appeal No.6641 of B
2010 has been filed in this Court.
5. It was submitted by Shri S.N. Bhat, learned counsel for
the appellant that the High Court has erred in fastening the
liability upon the KSRTC. In view of the lease agreement for C
hire entered into between the KSRTC and the owner, the owner
could not escape the liability to make the p~yment of
compensation. As such, the insurer was liable to indemnify
Jhe owner and to make the payment of compensation. The
liability could not have been fastened upon the KSRTC.
D
Learned counsel has placed reliance on the decision of this
Court in Uttar Pradesh State Road Transport Corporation v.
Ku/sum & Ors., (2011) 8 SCC 142.
6. Shri Vishnu Mehra, learned counsel appearing on
E
..,behalf of New India Assurance Co. Ltd. contended that in view
of the fact that the vehicle was plied under the complete control
and supervision of KSRTC, it cannot escape from the liability
to make the payment of compensation. He has relied upon
the decision of this Court in Rajasthan State Road Transport F
Corporation v. Kai/ash Nath Kothari & Ors., (1997) 7 SCC
481 and the definition of the owner under Section 2(30) of the
Motor Vehicles Act, 1988 (hereinafter referred to as the 'Act').
He has consequently submitted that owner and insurer have
rightly been exonerated by the High Court.
G
7. It was submitted on behalf of the claimants that they
can recover the compensation from the KSRTC, owner and
insurer jointly and severally.
H
750
SUPREME COURT REPORTS
(2015] 1 O S.C.R.
A
8. The owner has been defined under Section 2(30) of
the Motor Vehicles Act, 1988 (hereinafter referred to as the
Act of.1988). The definition in the Act of 1988 is extracted
hereunder:
B
"2(30) "owner" means a person in whose name a motor
vehicle stands registered, and where such person is a
minor, the guardian of such minor, and in relation to a ·
motor vehicle which is the subject of a hire-purchase
agreement, or an agreement of lease or an agreement
C
of hypothecation, the person in possession of the vehicle
under that agreement;"
D
E
9. The definition of owner under Section 2( 19) of the Motor
Vehicles Act, 1939 read as under:-
"2(19) "owner" means, where the person, in possession
of a motor vehicle is a minor, the guardian of such minor,
and in relation to a motor vehicle which is the subject of
a hire purchase agreement, the person in possession of
the vehicle under that agreement."
10. Under the Act of 1988, the owner means a registered"'"
owner and where the agreement on hire-purchase or an
agreement of hypothecation has been entered into or lease
F agreement, the person in possession of the vehicle is treated
as an owner.
11. Section 146 of the Act of 1988 prescribe the necessity
for insurance against third party risk. Motor vehicle cannot be
used in a public place without policy of insurance complying
G with the requirement of Chapter X1. Exemption has been
carved out to the vehicles owned by the Central or State
Governments and used for government purposes. Under subsection (3) of Section 146, it is open to the appropriate
H Government to exempt the vehicle owned by the Central or
MANAGING DIRECTOR, K.S.R.T.C. v. NEW INDIA
751
ASSURANCE CO. LTD. [ARUN MISHRA, J.]
State Governments if it is used for Government purposes or A
any local authority or any State transport undertaking.
12. Section 14 7 of the Act of 1988 deals with the
requirements of policy and limits of liability. The statutory
requirement under Section 147 is that policy of insurance must s
be a policy which is issued by authorised Insurer and insures
the person or class of persons specified in the policy to the
extent spec[fied in sub-section (2)(i) against any liability which
may be incurred by him in respect of the death of or bodily
injury to any person, including owner of the goods or his C
authorised representative carried in the vehicle or damage to
any property of a third party caused by or arising out of the use
of the vehicle in a public place; and (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.
D
13. Certain exception have been carved out in the proviso
to sub-section (1) of section 147. It is contained in proviso (ii)
that the policy shall not be required to cover any contractual
liability. Limits of the liability have been provided in Section
E
147(2). The liability un.der Section 147(2)(1)(b) is the amount
of liability incurred and with respect to any damage to any
property of a third party, a limit of Rs.6,000/-. Section 147(5)
provides that notwithstanding anything contained in any law
for the time being in force, an insurer shall be liable to indemnify F
the person or classes of persons 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 persons.
14. Section 157 of the Act 1988 deals with the deemed G
transfer of certificate of insurance. Provisions of Section 157
are as under:
"157. Transfer of certificate of insurance.-
( 1) Where a person in whose favour the certificate of H
752
SUPREME COURT REPORTS
[2015) 1 O S.C.R.
A
insurance has been issued in accordance with the
provisions of this Chapter transfers to another person
the ownership of the motor vehicle in respect of which
such insurance was taken together with the policy of
insurance relating thereto, the certificate of insurance and
B
'the policy described in the certificate shall be deemed
to have been transferred in favour of the person to whom
the motor vehicle is transferred with effect from the date
of its transfer.
C
(2) The transferee shall apply within fourteen days from
the date of transfer in the prescribed form to the insurer
for making necessary changes in regard to the fact of
transfer in the certificate of insurance and the policy
described in the certificate in his favour and the insurer
D
shall make the necessary changes in the certificate and
the policy of insurance in regard to the transfer of
insurance."
It is apparent from Section 157 ( 1) of the Act of 1988 that
E certificate shall be deemed to have been transferred in favour
of the person to whom the motor vehicl.e is transferred with
effect from the date of its transfer. Section 157 (2) of the Act
provides that the transferee to apply within 14 days from the
date of transfer in the prescribed form to make necessary
F changes in the certificate of insurance.
15. Before dilating further, we deem it appropriate to advert
to the certain clauses in the lease agreement on the basis of
which vehicles are plied on hire by the KSRTC. The owner of
G the private bus has to provide new bus to KSRTC for the
purpose of hire.
16. As per clause 6, the owner of the private bus to
discharge statutory liability. Clauses 6(i) and (ii) of lease
H agreement are quoted below:
MANAGING DIRECTOR, K.S.R.T.C. v. NEW INDIA
753
ASSURANCE CO. LTD. [ARUN MISHRA, J.]
"6(i) In case the owner of the private bus defaults in the A
discharge of any of his statutory liability, KSRTC reserves
the right to deduct such amounts from the amount payable
to the owner as it is sufficient to discharge the liability,
and ifthe liability is more than the amounts payable by
KSRTC to the owner, the owner alone shall be liable to B
discharge the liability and/or to make good the amount
to KSRTC, if discharged by KSRTC.
6(ii) If because of any default by the bus owner or by his/
her drivers/other employees, agent representative, any C
liability comes on KSRTC, the KSRTC has the right to
recover the amount either from the bills payable or the
security deposit and to take further steps to recover the
balance from the private owner by any lawful means."
17. The Conductor was to be provided under clause 7(iv)
by the KSRTC and was entitled to collect the fare and luggage
charges etc. for and on behalf of KSTRC.
D
18. As per clau·se 8, Drivers were to be engaged and E
provided by the owner. Salary etc. was also to be paid by the .
owner and is subject to other conditions such as they should
not have been dismissed from the services of the Central
Government etc. and should possess requisite licence.
F
19. Clause 14 of lease agreement with respect to
insurance coverage is also relevant which is extracted as
under:
"14. The owner of the private bus shall keep the hired
bus duly insured under a Motor Vehicle comprehensive G
insurance police covering all risks and all such costs shall
be born by the qwner of the private bus. In case of failure
to have a valid comprehensive insurance policy. The bus
will not be used for KSRTC's operations and it will be H
754
SUPREME COURT REPORTS
[2015] 1 O S.C.R.
A
deemed that the bus has not been made available to
KSRTC for scheduled operations, with all consequent of
effects. The insurance shall cover 61 passengers."
20. Clause 16 relating to liability as to accidents is also
B important for the purpose of decision of the case. Clauses
c
D
E
F
G
H
16(a) (b) and (c) are extracted as under:-
"( a) The owner of the bus alone shall be solely liable for
any claim arising out of any accident, damages or loss
or hurt caused during the operation of the bus. The
KSRTC shall not be liable for any claims arising out of
the use of the buses, including claims made in connection
with the impurities or loss of life sustained by passengers,
bus crew or any other road user or to any property/person.
Besides, all tortuous liability if any, shall be borne by the
owner or the insurer of the vehicle themselves. However
the accidents should be reported to the KSRTC office/
Depot.
(b) KSRTC may make payment of ex-gratia amount to
the victims in event of accident of such private hired buses
while on KSRTC operations as per the KSRTC's
prevailing norms which shall be recovered from any
amounts due to the owner of such private buses or from
security Deposit etc. Further, the owner of such private
bus should make prompt payment of 'no fault liability' or
any other claim under the law for such accident victims.
In case KSRTC is compelled to make such payment on
behalf of the owner of private buses, it shall be recovered
from any amount due to the owner by KSRT:C or
receivable to him from Insurance Company or .other
debtors etc. 11\case of non-payment to non-recovery of
such amount by KSRTC within 15 days, interest at 15%
per annum shal! also be recoverable. For delays beyond
30 days KSRTC may amount or adjustment thereof
MANAGING DIRECTOR, K.S.R.T.C. v. NEW INDIA
755
ASSURANCE CO. LTD. [ARUN MISHRA, J.]
towards hire charges payable.
A
(c) It shall be the responsibility of the owner of tho private
bus to produce at his own cost, the driver/bus before the
court of ......... and before the police authorities
whenever required in case of accident or any other
contingencies or on order or directions by the Judicial 8
Or Executive authorities ....... charges shall be payable
by KSRTC in such cases."
It is apparent from clause 16(a) that in case of accident
claim, the KSRTC shall not be liable for any claim arising out C
of use of buses including loss of life sustained by passengers
or any other user or to any property/person. If KSRTC makes
any ex gratia payment in the case of accident, the same shall
be recovered from any amount due to the owner in case
KSRTC is made liable to make payment of compensation on
D
behalf of private buses it shall be recovered from any amount
due to the owner by KSRTC or receivable to him from Insurance
Company etc.
21. Clauses 17, 18, 19 and 20 are also relevant they are E
extracted below:
"17. The KSRTC shall not be liable for any loss caused
to the buses hired, at any point of time including during
the period of agitations, strikes, accidents, natural F
calamities etc.
18. The owner of the private bus shall be liable for shall
alone discharge or meet all claims including fines and
penalties arising out of violation of traffic Rules, and
Regulations, Statutes, Acts, Rules and Regulations etc., G
in force for act of omissions or commissions committed
either by his/her drivers or by any other person not
authorised to drive. The owner of the private bus shall be
liable and shall meet and discharge any claim for
compensation or damages on account of tortuous H
756
A
B
c
D
E
SUPREME COURT REPORTS
[2015] 10 S.C.R.
liability.
19(a) The owner of the private bus shall provide and
make available bus/buses as per the contract to KSRTC
on all days or operation in time as per the schedule
departing time and also as so as to cover the entire
schedule Kms. Duty.
(b} The owner of the private bus shall not withdraw any
bus from the operation except with advance notice before
24 hours and with prior written consent of the depot
manager concerned of KSRTC to do so. In case any
violation of this clause, the owner shall be liable for
imposition of penalties by the KSRTC.
20(1 )(a) The KSRTC on its part agrees to pay hire
charges to the owner at the rates inculcation in the hiring
rate charts atAnnexureA1 and A2, subject to the rules,
terms and conditions of the contract. The hiring rate
applicable shall be based on the schedule Kms. of the
route allotted to the hired bus, except as otherwise
provided herein."
22. The main question for consideration is whether the
registered owner and insurer can escape the liability in view
of the provisions contained in the Act and in view of the
F aforesaid terms and conditions of the lease agreement. The
question also arise whether claimants can also recover the
amount from KSRTC.
23. The High Court has held that actual control of the bus
G was with the KSRTC and the driver ~as driving the bus under
its control. Relying upon the decisions in National Insurance
Co. Ltd. V Deepa Devi & Ors., (2008) ·1 SCC 414 and
Rajasthan State Road Transport Corporation v. Kai/ash Nath
Kothari & Ors., ( 1997) 7 SCC 481, it was held that KSRTC to
H be the owner under Section 2(30) of the Act. There is no liability
MANAGING DIRE.CTOR., K.::>.R.T.C. v. NEW INDIA
757
ASSURANCE CO. LTD. [ARUN MISHRA, J.]
of the registered owner as such insurer cannot be saddled A
with liability to indemnify. Hence, the registered owner and the
insurer have been exonerated. The KSRTC has been fastened
with the liability.
In our opinion, decision of High Court is not sustainable. s
The provisions contained in the Act are clear. No vehicle can
be driven without insurance as provided in Section 147
whereas clause 14 of lease agreement between KSRTC and
· the owner clearly stipulate that it shall be the liability of the owner
to provide the comprehensive insurance covers for all kind of C
accidental risks to the passengers, other persons/property. The
provisions of said clause of the agreement are not shown to
be opposed to any provision in the Contract Act or any of the
provisions contained under the Act of 1988. Hiring of public
service vehicles is not prohibited under any of the provisions D
of the aforesaid laws. It could not be said to be inconsistent
user by KSRTC. The agreement is not shown to be illegal in
any manner whatsoever nor shown to be opposed to the public
policy.
E
24. The policy of insurance is contractual obligation
between the insured and the insurer. It has not been shown
that while entering into the aforesaid agreement of lease for
hiring the buses, any of the provisions contained in the
insurance policy has been violated. It has not been shown that F
owner could not have given bus on hire as per any provision of
policy. It was the liability of the registered owner to provide the
bus regularly, to employ a driver, to make the payment of salary
to the driver and the driver should be duly licenced and not
disqualified as provided in the agreement though buses were G
to be plied on the routes as specified by the KSRTC and hiring
charges were required to be paid to the registered owner. In
the absence of any stipulation prohibiting such an arrangement
in the insurance policy, we find that in view of agreement of H
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[2015) 1 O S.C.R.
A
lease the registered owner has owned the liability to pay. The
insurer cannot also escape the liability.
8
25. Apart from that what is provided under Section 157 of
the Act of 1988 is that 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 motor vehicle
is transferred with effect from the date of its transfer. Even if
there is a transfer of the vehicle by sale, the insurer cannot
escape the liability as there is deemed transfer of the certificate
c of insurance. In the instant case it is not complete transfer of
the vehicle it has been given on hire for which there is no
prohibition and no condition/policy of insurance as shown to
prohibit plying of vehicle on hire. The vehicle was not used for
inconsistent purpose. Thus, in the absence of any legal
D prohibition and any violation of terms and conditions of the
policy, more so, in view of the provisions of Section 157 of the
Act of 1988, we are of considered opinion that the insurer
cannot escape the liability.
26. Now, we come to the question of exclusion of
E
contractual liability under second proviso to Section 147(1).
When we read provisions of Section 14 7 with Section 157
together, it leaves no room for any doubt that there is deemed
transfer of policy in case of transfer of vehicle. Hence, liability
of insurer continues notwithstanding the contract of transfer of
F vehicle, such contractual liability cannot be said to be excluded
by virtue of second proviso to Section 147(1) of Act of 1988.
Higher purcha~e agreement, an agreement for lease or an
agreement for hypothecation are covered under Section 2(30)
G of the Act of 1988. A person in possession is considered to be
an owner of the vehicle under such agreements. In case such
contractual liability is excluded then anomalous results would
occur and financer under higher purchase agreement would
be held liable and so on. In our view, an agreement for lease
H on hire cannot be said to be contract envisaged for exclusion
MANAGING DIRi.:CTOR, K.S.R.T.C. v. NEW INDIA
759
ASSURANCE CO. LTD. [ARUN MISHRA, J.]
under contractual liability in second proviso to Section 14 7 ( 1) A
of the Act of 1988. The High Court has erred in holding
otherwise.
27. The KSRTC can also be treated as owner for the
purposes of Section 2(30) of the Act of 1988 plying the buses
8
under lease agreement. The insurance company admittedly
has insured the vehicle and taken the requisite premium and it
is not a case set up by the insurer that intimation was not given
to the insurance company of the hiring arrangement. Even if
the intimation had not been given, in our opinion, the insurer C
cannot escape the liability to indemnify as in the case of hiring
of vehicle intimation is not required to be given. It is only in the
case of complete transfer of the vehicle when change of
registration particulars are required under Section 157 of the
Act, an intimation has to be given by the transferee for effecting o
necessary changes in the policy. Even otherwise, that would
be a ministerial act and the insurer cannot escape the liability
for that reason. When the KSRTC has become the owner of
the vehicle during the period it was on hire with it for the purpose
of Section 2(30) of the Act by virtue of provisions contained in
E
. Section 157 of the Act, the insurance policy shall be deemed
to be transferred. As such, insurer is liable to make
indemnification and ·cannot escape the liability so incurred by
theKSRTC.
28. In RSRTC v. Kai/ash Nath Kothari (supra), question F
of liability of insurance company did not come up ·for
consideration. The vehicle was taken by RSRTC from its owner
Sanjay Kumar and it was being plied on the route by RSRTC.
The case arose out of accident date 17. 7 .1981 under the Act G
of 1939. The definition of second owner under section 2(19)
of Act of 1939 came up for consideration before this Court,
and conditions 4 to 7 and 15 of agreement between RSRTC
and the owner, this Court held that vehicle in question was in
possession and actual control of RSRTC as such it cannot H
760
SUPREME COURT REPORTS
(2015) 10 S.C.R.
A escape from liability. Relevant portion of decision is extracted
below:-
B
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"15. Conditions 4 to 7 and 15 of the agreement executed
between the RSRTC and the owner read:
"4. The Corporation shall appoint the conductor for the
operation of the bus given on contract by the second party
and the conductor of the Corporation shall do the work
of issuing tickets to the passengers, to receive the fare,
to let all the passengers get in and get out of the bus, to
help the passengers to lo.ad and unload their goods, to
stop the bus at the stops fixed by the Corporation and to
operate the bus according to time-table.
5. The tickets, waybills and other stationery shall be
supplied by the Corporation to the said conductor of the
Corporation.
6. The driver of the bus shall have to4fettow all such
instructions of the conductor, which shall be necessary
under the rules for the operation of the bus.
7. The driver of the bus shall comply with all the orders of
the Corporation or of the officers appointed by the
Corporation.
15. Upon the accident of the bus taking place the owner
of the bus shall be liable for the loss, damages and for
the liabilities relating to the safety of the passengers. The
Corporation shall not be liable for any accident. If the
G
Corporation is required to make any payment or incur
any expenses through some court or under some mutual
compromise, the Corporation shall be able to recover
such amounts from the owner of the bus after deducting
the same from the amounts payable to him."
H
MANAGING DIRECTOR, K.S.R.T.C. v. NEW INDIA
761
ASSURANCE CO. LTD. [ARUN MISHRA, J.]
16. The admitted facts unmistakably show that the vehicle A
in question was in possession and under the actual control
of RSRTC for the purpose of running on the specified
route and was being used for carrying, on hire,
passengers by the RSRTC. The driver was to carry out
instructions, orders and directions of the conductor and B
other officers of the RSRTC for operation of the bus on
the route specified by the RSRTC.
17. The definition of owner under Section 2(19) of the
Act is not exhaustive. It has, therefore to be construed, in c
a wider sense, in the facts and circumstances of a given
case. The expression owner must include, in a given
case, the person whci has the actual possession and
control of the vehicle and under whose directions and
· commands the driver is obliged to operate the bus. To D
confine the meaning of "owner" to the registered owner
only would in a case where the vehicle is in the actual
possession and control of the hirer not be proper for the
purpose of fastening of liability in case of an accident.
The liability of the "owner" is vicarious for the tort E
committed by its employee during the course of his
employment and it would be a question of fact in each
case as to on whom can vicarious liability be fastened in
the case of an accident. In this case, Shri Sanjay Kumar,
the owner of the bus could not ply the bus on the particular F
route for which he had no permit and he in fact was not
plying the bus on that route. The services of the driver
were transferred along with complete "control" to RSRTC,
under whose directions, instructions and command the G
driver was to ply or notto ply the ill-fated bus on the fateful
day. The passengers were being carried by RSRTC on
receiving fare from them. Shri Sanjay Kumar was
therefore not concerned with the passengers travelling
in that bus on the particular route on payment of fare to H
762
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SUPREME COURT REPORTS
[2015] 10 S.C.R.
RSRTC. Driver of the bus, even though an employee of
the owner, was at the relevant time performing his duties
under the order and command of the conductor of
RSRTC for operation of the bus. So far as the
passengers of the ill-fated bus are concerned, their privity
of contract was only with the RSRTC to whom they had
paid the fare for travelling in that bus and their safety
therefore became the responsibility of the RSRTC while
travelling in the bus. They had no privity of contract with
Shri Sanjay Kumar, the owner of the bus at all. Had it
been a case only of transfer of services of the driver and
not of transfer of control of the driver from the owner to
RSRTC, the matter may have been somewhat different.
But on facts in this case and in view of Conditions 4 to 7
of the agreement (supra), the RSRTC must be held to
be vicariously liable for the tort committed by the driver
while plying the bus under contract of the RSRTC. The
general proposition of law and the presumption arising
therefrom that an employer, that is the person who has
the right to hire and fire the employee, is generally
responsible vicariously for the tort committed by the
employee concerned during the course of his employment
and within the scope of his authority, is a rebuttable
presumption. If the original employer is able to establish
that when the servant was lent, the effective control over
him was also transferred to the hirer, the original owner
can avoid his liability and the temporary employer or
the hirer, as the case may be, must be held vicariously
liable for the tort committed by the employee concerned
in the course of his employment while under the
command and control of the hirer notwithstanding the fact
that the driver would continue to be on the payroll of the
original owner. The proposition based on the general
principle as noticed above is adequately rebutted in this
case not only on the basis of the evidence led by the
MANAGING DIRECTOR, K.S.R.T.C. v. NEW INDIA
763
ASSURANCE CO. LTD. [ARUN MISHRA, J.]
parties but also on the basis of Conditions 6 and 7 A
(supra), which go to show that the owner had not merely
transferred the services of the driver to the RSRTC but
actual control and the driver was to act under the
instructions, control and command of the conductor and
other officers of the RSRTC.
B
18. Reliance placed by learned counsel for the appellant
on Condition No. 15 of the agreement (supra) in our view
is misconceived. Apart from the fact that this clause in
the agreement between the owner and the RSRTC, to c
the extent it shifts the liability for the accident from the
RSRTC to the owner, may be against the public policy
as opined by the High Court, though we are not inclined
to test the correctness of that proposition of law because
on facts, we find that RSRTC cannot escape its liability D
to pay compensation. The second part of Condition No.
15 makes it abundantly clear that the RSRTC did not
completely shift the liability to the owner of the bus
because it provided for reimbursement to it in case it
has to pay compensation arising out of an accident. The E
words "if the Corporatipn is required to make any
payment or incur any expenses through some court or
under some mutual compromise, the Corporation shall
be able to recover such amounts from the owner of the
bus after deducting the same from the amounts payable
F
to him" in the later part of Condition No. 15 leave no
ambiguity in that behalf and clearly go to· show the
intention of the parties. Thus, RSRTC cannot escape its
liability under Condition No. 15 of the agreement either. G
Thus, both on facts and in law the liability to pay
compensation for the accident must fall on the RSRTC."
It is apparent that question of the liability of the insurer did
not come up for consideration and also the relevant statutory
provisions relating thereto in aforesaid decision. This Court,
H
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[2015] 10S.C.R.
A considering clause 16 of the agreement entered into by RSRTC
and owner, held that RSRTC did not completely shift the liability
to the owner of the bus in case it has to pay compensation
arising out of an accident. In the instant cases also there are
certain clauses referred to above which indicate that if the
B KSRTC has to make the payment, it can recover the same
from the owner out of the amount payable by it or from the
amount payable by the insurer to the owner. On the strength of
decision in RSRTC v. Kai/ash Nath Kothari (supra), the
KSRTC being in actual control of the vehicle would also be
C liable to make the compensation, however, in our opinion it
can recover the amount from the registered owner or insurer,
as the case may be. In fact of the case, vis-a-vis, the claimants'
liability would be joint and several upon the KSRTC, registered
0
owner and the insurer.
29. In National Insurance Co. v. Deepa Devi (supra),
vehicle was under requisition by the State Government and
that possession on requisition was not covered by the definition
of the owner under section 2(30) in the Act of 1988 or the Act
E of 1939. It was held by this Court as the Motor Vehicles Act did
not envisage such a situation. ~wner in such a case has to be
understood from common sense point of view. Thus, the State
was held liable to make the payment .of compensation. The
F question was altogether different in the aforesaid case.
30. In Godavari Finance Company v. Degala
Satyanarayanamma & Ors., (2008) 5 SCC 107, definition of
owner came up for consideration. It was held that the name of
the financer was incorporated in the registration book as
G owner.