Case: Managing Director, K.S.R.T.C Vs. New India Assurance Co.Ltd

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 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.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 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. Aggrieved thereby, the KSRTC has come up in the appeal before us.4. In Civil Appeal No.6641 of 2010, the bus was plied 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 2010 has been filed in this

Court's reasoning:
In our opinion, decision of High Court is not sustainable. 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 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 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 publicthe 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 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.Now, we come to the question of exclusion of contractual liability under second proviso to Section 147(1). When we read provisions of Section 147 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 vehicle, such contractual liability cannot be said to be excluded by virtue of second proviso to Section 147(1) of Act of 1988. Higher purchase agreement, an agreement for lease or an agreement for hypothecation are covered under Section 2(30) 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 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.27. The KSRTC 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 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 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 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 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 the KSRTC.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 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 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 wordsthe 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 toin 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. Thus, both on facts and in law the liability to pay compensation for the accident must fall on theis 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, 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 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. Kailash Nath Kothari (supra), the KSRTC being in actual control of the vehicle would also be 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-à-vis, theliability would be joint and several upon the KSRTC, registered owner and the insurer.The liability to pay compensation is based on a statutory provision. Compulsory insurance of the vehicle is meant for the benefit of the third parties. The liability of the owner to have compulsory insurance is only in regard to third party and not to the property. Once the vehicle is insured, the owner as well as any other person can use the vehicle with the consent of the owner. Section 146 of the Act does not provide that any person who uses the vehicle independently, a separate insurance policy should be taken. The purpose of compulsory insurance in the Act has been enacted with an object to advance social justice.On a careful analysis of the principles stated in the foregoing cases, it is found that there is a common thread that the person in possession of the vehicle under the hypothecation agreement has been treated as the owner. Needless to emphasise, if the vehicle is insured, the insurer is bound to indemnify unless there is violation of the terms of the policy under which the insurer can seek exoneration.In view of the decision in HDFC Bank Limited v. Reshma & Ors. (supra), the insurer cannot escape the liability, when ownership changes due to the hypothecation agreement. In the case of hire also, it cannot escape the liability, even if the ownership changes. Even though, KSRTC is treated as owner under Section 2(30) of the Act of 1988, the registered owner continues to remain liable as per terms and conditions of lease agreement lawfully entered into with KSRTC.34. In view of the aforesaid discussion, we hold that registered owner, insurer as well as KSRTC would be liable to make the payment of compensation jointly and severally to the claimants and the KSRTC in terms of the lease agreement entered into with the registered owner would be entitled to recover the amount paid to the claimants from the owner as stipulated in the agreement or from the insurer.