Case: National Insurance Company Ltd.  Vs. Balakrishnan and Ors

Succinctly stated, the facts are that the respondent No. 1 met with an accident about 8.30 p.m. on 23.3.2001 while travelling in the Lancer car bearing registration No. TN 49 K 2750 belonging to the respondent No. 2, as it dashed against a bullock cart near Muthandipatti Pirivu Road-I. He knocked at the doors of the Motor Accident Claim Tribunal (for short the the tribunal) in MACOP No. 357 of 2004 under Sections 140, 147 and 166 of the Motor Vehicles Act, 1988 (for brevity the Act) claiming compensation of Rs.20,00,000/- jointly and severally from the appellant as well as the company on the foundation that the vehicle in question was insured with the appellant-company. Be it noted, the amount was calculated on the basis of pecuniary and non-pecuniary damages3. The insurer resisted the claim on the grounds that the claimant had suppressed the fact that he was the Managing Director of the company and hence, the application deserved to be thrown overboard; that even if the petition was entertained the insurance company could not be held liable to indemnify the respondent as the appellant was himself the owner being the Managing Director and under no circumstances he could be treated as a third party; that the policy taken by the company did not cover an occupant in the vehicle but only covered the owner for a limited quantum and hence, the claim was not allowable as sought for4. The tribunal, in its award dated 19.4.2007, addressed to the issues of rash and negligent driving of the driver, injuries sustained by the insured and the liability of the insurance company. On the basis of the material brought on record, it came to hold that the accident had occurred due to rash and negligent driving of the driver of the 1st respondent; that the claimant was injured in the accident; that regard being had to the injuries sustained he was entitled to get Rs.8,63,200/- as compensation with interest @ 7.5% per annum from the date of the petition till the date of deposit; and that the insurance company was liable to indemnify as the owner of the vehicle was the company, and the injured was travelling in the car as a third party5. Being dissatisfied with the award passed by the tribunal, the insurer preferred C.M.A. (M.D.) No. 1624 of 2008 before the Madurai Bench of Madras High Court and in appeal it was urged that the victim, the Managing Director, who was running the hospital in the name of his deceased father, was the legal owner of the car though the vehicle was insured in the name of the company and, therefore, the liability was to the limited extent as stipulated in the policy. It was also canvassed, in any case, he was a non-fare paying passenger in the car for which no extra premium was paid and hence, the liability could not be fastened on the insurer. The High Court treated the company to be the owner of the vehicle and repelled the stand that the Managing Director was the owner, and further held that as he was only an occupant of the car the insurance company was liable to indemnify the owner for the claim put forth by the victim. It is worthy to note that the High Court opined that if no premium is paid to cover the owner, the insurer is not liable to make good the loss but if another person travels with the owner and suffers injuries the insurer is liable to pay the compensation. Being of this view, the High Court dismissed the appeal. Hence, the present appeal by the insurer.

Court's reasoning:
scrutiny of the award passed by the tribunal which has been given the stamp of approval by the High Court, it is manifest that the 1st respondent was the Managing Director of the respondent No. 2 and the vehicle was registered in the name of the company but the Managing Director had signed on behalf of the company in the R. C. book of the car that was involved in the accident. The High Court has returned a finding that the company and the Managing Director are two different legal entities and hence, the Managing Director cannot be equated with the owner. On that foundation, the claimant has been treated as a passenger and, accordingly, liability has been fastened on the insurer.On a scanning of the aforesaid provision, it is evident that the policy of insurance must be a policy which complies with the conditions enumerated under Section 147 (1) (a) & (b). It also provides where a policy is not required and also stipulates to cover any contractual liability.15. At this juncture, we may refer with profit to a two-Judge Bench decision in Bhagyalakshmi and others v. United Insurance Company Limited and another [(2009) 7 SCC 148] wherein the learned Judges took note of the contention of the learned senior counsel for the claimant-appellant which was to the effect that after the deletion of the second proviso appended to Section 95(1)(b) of the Motor Vehicles Act, 1939 in the 1988 Act, the liability of a passenger in a private vehicle must also be included in the policy in terms of the provisions of the 1988 Act. The Bench reproduced the policy, referred to Section 64-B of the Insurance Act, 1938, took note of the role of the Tariff Advisory Committee and referred to the decisions in Amrit Lal Sood and Another v. Kaushalya Devi Thapar and Others [(1998) 3 SCC 744] , Asha Rani (supra), Tilak Singh (supra), Jhuma Saha (supra) and Sudhakaran K. V. and Others (supra) and observed thus :Before this Court, however, the nature of policies which came up for consideration were Act policies. This Court did not deal with a package policy. If the Tariff Advisory Committee seeks to enforce its decision in regard to coverage of third-party risk which would include all persons including occupants of the vehicle and the insurer having entered into a contract of insurance in relation thereto, we are of the opinion that the matter may require a deeper scrutinyOn a perusal of the aforesaid paragraph, it is clear as crystal that the decisions that have been referred to in Bhagyalakshmi (supra) involved only Act Policies. The Bench felt that the matter would be different if the Tariff Advisory Committee seeks to enforce its decision in regard to coverage of third party risk which would include an occupant in a vehicle. It is worth noting that the Bench referred to certain decisions of Delhi High Court and Madras High Court and thought it appropriate to refer the matter to a larger Bench. Be it noted, in the said case, the Court was dealing with comprehensive policy which is also called a package policy. In that context, in the earlier part of the judgment, the Bench had stated thus:-The policy in question is a package policy. The contract of insurance if given its face value covers the risk not only of a third party but also of persons travelling in the car including the owner thereof. The question is as to whether the policy in question is a comprehensive policy or only an Act policy.. Thus, it is quite vivid that the Bench had made a distinction between the Act policy and comprehensive policy/package policy. We respectfully concur with the said distinction. The crux of the matter is what would be the liability of the insurer if the policy is a comprehensive/package policy. We are absolutely conscious that the matter has been referred to a larger Bench, but, as is evident, the Bench has also observed that it would depend upon the view of the Tariff Advisory Committee pertaining to enforcement of its decision to cover the liability of an occupant in a vehicle in a comprehensive/package policy regard being had to the contract of insurance.17. At this stage, it is apposite to note that when the decision in Bhagyalakshmi (supra) was rendered, a decision of High Court of Delhi dealing with the view of the Tariff Advisory Committee in respect of comprehensive/package policy had not come into the field. We think it apt to refer to the same as it deals with certain factual position which can be of assistance. The High Court of Delhi in Yashpal Luthra and Anr. V. United India Insurance Co. Ltd. and Another [2011 ACJ 1415 ], after recording the evidence of the competent authority of Tariff Advisory Committee (TAC) and Insurance Regulatory and Development Authority (IRDA), reproduced a circular dated 16.11.2009 issued by IRDA to CEOs of all the Insurance Companies restating the factual position relating to the liability of Insurance companies in respect of a pillion rider on a two-wheeler and occupants in a private car under the comprehensive/package policy.19. It is extremely important to note here that till 31st December, 2006 the Tariff Advisory Committee and, thereafter, from 1st January, 2007, IRDA functioned as the statutory regulatory authorities and they are entitled to fix the tariff as well as the terms and conditions of the policies by all insurance companies. The High Court had issued notice to the Tariff Advisory Committee and the IRDA to explain the factual position as regards the liability of the insurance companies in respect of an occupant in a private car under the comprehensive/ package policy. Before the High Court, the Competent Authority of IRDA had stated that on 2nd June, 1986, the Tariff Advisory Committee had issued instructions to all the insurance companies to cover the pillion rider of a scooter/motorcycle under the comprehensive policy and the said position continues to be in vogue till date. It had also admitted that the comprehensive policy is presently called a package policy. It is the admitted position, as the decision would show, the earlier circulars dated 18th March, 1978 and 2nd June, 1986 continue to be valid and effective and all insurance companies are bound to pay the compensation in respect of the liability towards an occupant in a car under the comprehensive/package policy irrespective of the terms and conditions contained in the policy. The competent authority of the IRDA was also examined before the High Court who stated that the circulars dated 18th March, 1978 and 2nd June, 1986 of the Tariff Advisory Committee were incorporated in the Indian Motor Tariff effective from 1st July, 2002 and they continue to be operative and binding on the insurance companies. Because of the aforesaid factual position, the circulars dated 16th November 2009 and 3rd December, 2009, that have been reproduced hereinabove, were issued20. It is also worthy to note that the High Court, after referring to individual circulars issued by various insurance companies, eventually stated thus:-In view of the aforesaid, it is clear that the comprehensive/package policy of a two wheeler covers a pillion rider and comprehensive/package policy of a private car covers the occupants and where the vehicle is covered under a comprehensive/package policy, there is no need for Motor Accident Claims Tribunal to go into the question whether the Insurance Company is liable to compensate for the death or injury of a pillion rider on a two-wheeler or the occupants in a private car. In fact, in view of the TACs directives and those of the IRDA, such a plea was not permissible and ought not to have been raised as, for instance, it was done in the present case.. In view of the aforesaid factual position, there is no scintilla of doubt that a comprehensive/package policy would cover the liability of the insurer for payment of compensation for the occupant in a car. There is no cavil that an Act Policy stands on a different footing from a Comprehensive/Package Policy. As the circulars have made the position very clear and the IRDA, which is presently the statutory authority, has commanded the insurance companies stating that a Comprehensive/Package Policy covers the liability, there cannot be any dispute in that regard. We may hasten to clarify that the earlier pronouncements were rendered in respect of the Act Policy which admittedly cannot cover a third party risk of an occupant in a car. But, if the policy is a Comprehensive/Package Policy, the liability would be covered. These aspects were not noticed in the case of Bhagyalakshmi (supra) and, therefore, the matter was referred to a larger Bench. We are disposed to think that there is no necessity to refer the present matter to a larger Bench as the IRDA, which is presently the statutory authority, has clarified the position by issuing circulars which have been reproduced in the judgment by the Delhi High Court and we have also reproduced the same.There has been no discussion either by the tribunal or the High Court in this regard. True it is, before us, Annexure P-1 has been filed which is a policy issued by the insurer. It only mentions the policy to be a comprehensive policy but we are inclined to think that there has to be a scanning of the terms of the entire policy to arrive at the conclusion whether it is really a package policy to cover the liability of an occupant in a car.