IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH FAO No.936 of 1994 Date of decision:10.08.2010 National Insurance Company Limited and another ....Appellants versus Balwinder Kaur and others ...Respondents II. FAO No.937 of 1994 National Insurance Company Limited and another ....Appellants versus Amardeep Kaur and others ...Respondents CORAM: HON’BLE MR. JUSTICE K. KANNAN ---- Present: Mr. L.M.Suri, Senior Advocate, with Mr. Neeraj Khanna, Advocate, for the appellants. Mr. K.S.Sidhu, Senior Advocate, with Mr. G.S.Sidhu, Advocate, for the respondents. ---- 1. Whether reporters of local papers may be allowed to see the judgment ? Yes. 2. To be referred to the reporters or not ? Yes. 3. Whether the judgment should be reported in the digest ? Yes. ---- K.Kannan, J. 1. The point urged in both the appeals is that when, under the terms of the policy, the insurer has reserved to itself a right to contest on all grounds and, therefore, notwithstanding the statutory restriction under Section 149(2) delineating the permissible defences, the insurer is entitled to challenge even the issue of negligence and compensation. The FAO No.936 of 1994 - 2 - basis or justification for such a contention is that the owner has died and, therefore, it was not possible for the insured to prefer an appeal against the quantum and negligence. Making a vague allegation of collusion for the first time in appeal, the insurer also pleads for granting permission to the insurer at the appellate stage for contesting the claim on quantum and negligence under Section 170 of the Motor Vehicles Act. The learned counsel would refer to an order of reference made by this Court in New India Assurance Company Limited Versus Binu Sidhu and another- 2007(1) PLR 764 that the issue whether the Insurance Company could be permitted to challenge the award on grounds other than what are provided under Section 149(2) has been referred to a larger Bench by this Court and, therefore, the case has to await consideration till a larger Bench decides the issue. 2. First of all, I must point out that I have not been shown through any particular clause in the terms of the policy that enables the insurer to contend that it has reserved to itself the power to take defence on all grounds and particularly, the power to challenge the award even on grounds of negligence and quantum. The grounds of appeal sets out the clause which is supposed to the basis for the plea taken by the Insurance Company, which reads as under:- “No admission offer promise payment or indemnity shall be made or given by or on behalf of the insured without the written consent of the company which shall be entitled if it so desires to take over and conduct in the name of the insured the defence or settlement of any claim or to prosecute in the name of the insured for its own benefit any claim for indemnity or damages or otherwise and shall have FAO No.936 of 1994 - 3 - full discretion in the conduct of any proceedings or in the settlement of any claim and the insured shall give all such information and assistance as the company may require.” 3. The terms of the clause referred to above nowhere allows the insurer to take up defences on all grounds. On the other hand, it is a mechanism against any collusive conduct of the insured with the claimant. It states expressly that the insured shall not make any admission or promise or undertake indemnity to be given without the consent of the Company. The right to take over and conduct in the name of the insured shall arise by an act to compel the insured to cooperate at the trial and make his own evidence available if the insurer wants to put the evidence of the owner or the driver. Situation could be where the insurer's vehicle was not involved in the accident at all. The evidence of the driver or the owner may be relevant and it shall become possible for the insurer to compel the attendance of the witness in Court to make the appropriate defence on behalf of the insured also. The particular clause relied on by the insured is really stating the obvious. If the insurer wants to take a common line of defence along with the insured and deny the issue of quantum and negligence, it shall become possible. Practically it may take shape in the same counsel appearing both for the insurer and the insured. Beyond this, the clause referred to above, cannot be understood as permitting an insurer to take all defences notwithstanding the statutory limitations contained under Section 149(2). Such a contention is not merely impermissible but it is untenable. Even an insurer cannot contract out of statute or draft to itself special privileges which the MV Act does not give. FAO No.936 of 1994 - 4 - 4. Restriction of defences made under Section 149(2) has a certain objective to fulfill. “Objects and Reasons:-Clause 149 lays down that it is the duty of the insurers to satisfy judgments against persons insured in respect of third party risk. A careful reading of the provision would reveal that there is no compulsion for the insurer to be a party to the proceeding to be cast with the duty. Where judgment or award “is obtained against any person under the policy”, the insurer has a duty to indemnify such person. Hence the object of the Section is to impose a duty on the insurer to satisfy judgments even (if) they themselves were not parties to the proceedings. It would suffice for the insured to be made a party to the proceedings and contest it. Section 146 mandates the compulsory nature of motor insurance. Then Section 149(2) circumscribes the defences of the insurer. As early as in 1958-65 ACJ 1 (SC) the Supreme Court had adverted to the object of such provision. It is to be noted that absence of compulsion to implead the insurer in the first place has considerable significance in the context of Section 170 as well. That unfortunately has not been noted till date.” 5. In relation to the corresponding provisions under 1939 Act, which were spelt out in Chapter-VIII, the Hon'ble Supreme Court held in New Asiatic Insurance Company Limited Versus Pessumal Dhanamal Aswami-AIR 1964 SC 1736, “It appears from the heading, makes provision for insurance of the vehicle against third party risks, this is to say, its provisions ensure that third parties who suffer on account of the user of the motor vehicle would be able 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 FAO No.936 of 1994 - 5 - the causing of the injuries.” The Insurance Company, therefore, cannot arrogate to itself that it has a right of defence even on grounds outside the purview of Section 149(2). 6. The learned counsel would rely on the judgment of the Hon'ble Supreme Court in British India General Insurance Company Limited Versus Captain Itbar Singh and others-AIR 1959 SC 1331 as making possible all defences. The said judgment does not say anywhere that the Insurance Company will have a right of defence on all grounds. On the other hand, the said judgment was making an interpretation to the very same clause relied on by the learned counsel which we have extracted above, in the light of section 96(2) of the MV Act 1939 that corresponds to section 149(2) of the MV Act. Rejecting the plea that the insurer has other grounds also available through specific terms of the contract of insurance, the Supreme Court said in Para 7 as under:- “7. Now the language of sub-section (2) seems to us to be perfectly plain and to admit of no doubt or confusion. It is that an insurer to whom the requisite notice of the action has been given “shall be entitled to be made a party thereto and to defend the action on any of the following grounds, namely,” after which comes an enumeration of the grounds. It would follow that an insurer is entitled to defend on any of the grounds enumerated and no others. If it were not so, then of course no grounds need have been enumerated. When the grounds of defence have been specified, they cannot be added to. To do that would be adding words to the statute.” In para 16 of the judgment, the contention on behalf of the Insurer was FAO No.936 of 1994 - 6 - reproduced and in the succeeding para, it was answered, rejecting the contention. “16. There is another ground on which the learned Solicitor-General supported the contention that all defences are open to an insurer excepting those taken away by sub- section (3). He said that before the Act came into force, an injured person had no right of recourse to the insurer and that it was Section 96(1) that made the judgment obtained by the injured person against the assured binding on the insurer and gave him a right against the insurer. He then said that being so, it is only fair that a person sought to be made bound by a judgment should be entitled to resist his liability under it by all defences which he can in law advance against the passing of it. 17. Again, we find the contention wholly unacceptable. The Statute has no doubt created a liability in the insurer to the injured person, but the statute has also expressly confined the right to avoid that liability to certain grounds specified in it. It is not for us to add to those grounds and therefore, to the statute for reasons of hardship. We are furthermore not convinced that the statute causes any hardship. First the insurer has the right, provided he has reserved it by the policy, to defend the action in the name of the assured and if he does so, all defences open to the assured can then be urged by him and there is no defence that he claims to be entitled to urge. He can thus avoid all hardship, if any, by providing for a right to defend the action in the name of the assured and this he has full liberty to do. Secondly, if he has been made to pay something which on the contract of the policy he was not bound to pay, he can under the proviso to sub-section (3) and under sub- section (4) recover it from the assured. It was said that the assured might be a man of straw and the insurer might not FAO No.936 of 1994 - 7 - be able to recover anything from him. But answer to that is that it is the insurer's bad luck. In such circumstances the insured person also would not have been able to recover the damages suffered by him from the assured, the person causing the injuries. The loss had to fall on some one and the statute has thought fit that it shall be borne by the insurer. That also seems to us to be equitable for the loss falls on the insurer in the course of carrying on his business, a business out of which he makes profit, and he could so arrange his business that in the net result he would never suffer a loss. On the other hand, if the loss fell on the injured person, it would be due to no fault of his; it would have been a loss suffered by him arising out of an incident in the happening of which he had no hand at all.” (underlining mine). 18. We therefore feel that the plain words of sub-section (2) should prevail and that no ground exists to lead us to adopt the extraordinary course of adding anything to it. We think that the High Court was right in the view that it took.” 7. The underlined portions in the judgment and the ultimate conclusion that the Supreme Court reached in the penultimate paragraph will show the hollowness of such contentions that the insurer could take up other pleas than what are statutorily permitted. It must be noticed that the Hon'ble Supreme Court was referring to a right of the insurer to take all defences provided the defence is undertaken on behalf of the insured also. We have already explained above as to how it is possible when a joint defence is made by the insured and the insurer and how an insurer could seek for permission of the Court under Section 170 if the insured is not prepared to assist or cooperate in making such a common line of defence. By the very scheme of the Act, the insurer and the insured are FAO No.936 of 1994 - 8 - bound to mutually support each other and take up just defences. If the statute provides under Section 149(2) certain defences only, it does not mean that even the insured cannot contest the case of negligence or quantum. The defence of the insurer and the injured are found to be complementary. One does not supplant the other. If there is a conflict, it could be a conflict either of collusion between the claimants and the insured, in which case the insurer shall have a right of defence under Section 170. The permissible defences under Section 149(2) do create a conflict between the insured and the insurer but to ensure that they do not create prejudice to the claimants' entitlement, Section 149(4) and (5) make the insurer liable even for violation of terms of the policy and grants to the insurer only a right of recovery. If there is a valid policy of insurance, then even a violation of terms of the policy cannot be a ground to defeat the right of the injured or the representative of the deceased in a motor accident. 8. I am not impressed by the arguments that the issue has been referred to a larger Bench and, therefore, this Court must await the decision of the Division Bench of this Court. I am of the view that there has been an attempt to mislead the Court to even secure a reference. There is no grain of doubt in my mind that the plea taken by the insurer is irresponsible. As a matter of fact, the insurance company is in contempt in filing the appeal against the stare decisis established through its decisions. In Baradakanta Mishra, Ex Commissioner of Endowments Versus Bhimsen Dixit (1973) 1 SCC 446, holding that the practice of not following well laid propositions of law as constituting FAO No.936 of 1994 - 9 - contempt of court, the Supreme Court held, “15. The conduct of the appellant in not following the previous decision of the High Court is calculated to create confusion in the administration of law. It will undermine respect for law laid down by the High Court and impair the constitutional authority of the High Court. His conduct is therefore comprehended by the principles underlying the law of contempt. The analogy of the inferior court’s disobedience to the specific order of a superior court also suggests that his conduct falls within the purview of the law of contempt. Just as the disobedience to a specific order of the Court undermines the authority and dignity of the court in a particular case, similarly the deliberate and mala fide conduct of not following the law laid down in the previous decision undermines the constitutional authority and respect of the High Court. Indeed, while the former conduct has repercussions on an individual case and on a limited number of persons, the latter conduct has a much wider and more disastrous impact. It is calculated not only to undermine the constitutional authority and respect of the High Court, generally, but is also likely to subvert the Rule of Law and engender harassing uncertainty and confusion in the administration of law. 16. Our view that a deliberate and a mala fide conduct of not following the binding precedent of the High Court is contumacious does not unduly enlarge the domain of contempt. It would not stifle a bona fide act of distinguishing the binding precedent, even though it may turn out to be mistaken.” The issue whether there has been a collusion between the insured and the claimant cannot be taken up for the first time in appeal. There may be definite instances when the insurer may demand for some information FAO No.936 of 1994 - 10 - from the insured for building its defence that is permissible under the Act. If that is refused, it may apply to the Court at the trial for rights of defence under Section 170. It may also happen that the owner and the driver remained ex parte. It could provide an instance of evidence of collusion. Yet another situation could be when the insured takes a deliberate plea of involvement of the vehicle when the insurer has other information that the vehicle had not been involved at all. Such information could become possible for the insurer either before the trial or when the trial is in progress. In either case, the insurer cannot suffer an award and then plead that the insured had been acting in collusion. A fraud at the trial which is disclosed may vitiate the award itself but it must be an intrinsic fraud which the insured did not know at the trial but may afford to him a right to prefer an appeal and contend that a fraud had been committed and, therefore, the award is vitiated. I have not a ground of fraud urged in appeal. On the other hand, in the application for permission under Section 170 filed at the appellate stage, the contention is that the owner has died and, therefore, the insured could not be interested in preferring the appeal. If the owner has died, the representatives of the owner must be urged to prefer an appeal if there are grounds made for the same. It has been already held by the Hon'ble Supreme Court in United India Insurance Company Limited Versus Bushan Sachdeva-(2002) 2 SCC 265, that an insured could be treated as an aggrieved person, although there is an insurer to indemnify the claim against the insured. There has been string of authorities delivered from the Hon'ble Supreme Court itself that the Insurance Company cannot FAO No.936 of 1994 - 11 - challenge the quantum of compensation or take plea contrary to Section 149(2), in the absence of application being moved under Section 170 (please see Rita Devi and others Versus New India Assurance Company Limited and another-(2000-2) 125 PLR 768; National Insurance Company Limited Versus Nicolletta Rohtagi and others- (2002-3) 132 PLR 621 and New India Assurance Company Limited Versus Kiran Singh and others-(2004) ACJ 1176). All these decisions have already been referred to in the judgment of Binu Sidhu referred to above, where a reference has been made by a single Judge of this Court. 9. The contentions made by the Insurance Company are frivolous, vexatious and in gross contempt. I leave this case with a hope that the Insurer shall not vex this court with a contention that flouts a basic law of motor insurance. The appeals are dismissed with compensatory cost of Rs.10,000/- in two sets, payable alike to the respondents and to the High Court Legal Services Authority. The appeals are dismissed as not maintainable. Permission sought under Section 170 at the appellate stage is rejected. (K.KANNAN) JUDGE 10.08.2010 sanjeev