Case: New Asiatic Insurance Co. Ltd Vs. Pessumal Dhanamal Aswani And Ors

2. S. N. Asnani owned Chevrolet Car bearing registered No. AA 4431. He insured it with the New Asiatic Insurance Co. Ltd., hereinafter referred to as the company, under a policy dated November 26, 1957. Asnani permitted Pesumal Dhanamal Aswani, hereinafter called Pesumal to drive that car. When Pesumal was driving the car with Daooji Radhamohan Meherotra and Murli Dholandas in the car, the car met with an accident as a result of which Meherotra died and Murli received injuries.3. Pesumal himself owned a Pontiac car which had been insured with the Indian Trade and General Insurance Co. Ltd., under policy No. Bombay P. C. 42733-2 dated November 18, 1957.4. The heirs of Meherotra instituted suit No. 70 of 1959 against Pesumal for the recovery of Rs. 2,50,000/- by way of damages with interest. Murli instituted suit No. 71 of 1959 against Pesumal to recover Rs. 1,50,000/- by way of damages.5. Notices under S. 96(2) of the Motor Vehicles Act, 1939, Act IV of 1939 hereinafter called the Act were issued to the New Asiatic Insurance Co. Ltd. The notice was given to the company as the defendants liability to third parties had been insured with it under its policy No. MV/4564. The company then took out Chamber Summons and it was contended that notice under S. 96(2) of the Act was bad in law and should be set aside and that the company was not liable to satisfy any judgment which might be passed in the suit against the defendant. Alternatively, it was prayed that the company be added as a party defendant to the suit or be authorised to defend the suit in the name of the defendant. Tarkunde, J., held the notice issued to the company in the suits, under S. 96(2) of the Act, to be bad in law, and accordingly, set them aside.6. The plaintiffs then filed Letters Patent Appeals which were allowed and the Chamber Summonses were dismissed. It was directed that the trial Judge would hear the alternative prayers in the Chamber Summonses and make the necessary orders. It is against this order in each of the appeals that the company has preferred these appeals after obtaining special leave.

Court's reasoning:
16. Sub-section(5) of S. 95 makes the insurer liable to indemnify the person or classes of person 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. If the policy covers the insured for his liability to third parties, the insurer is bound to indemnify the person or classes of person specified in the policy. The same is the effect of sub-s. (1) of S. 96 which provides that the insurer is bound to pay to the person entitled to the benefit of a decree he obtains in respect of any liability covered by the policy against any person insured by the policy irrespective of the fact whether the insurer was entitled to avoid or cancel or might have avoided or cancelled the policy. This means that once the insurer has issued a certificate of insurance in accordance with sub-s. (4) of S. 95 he has to satisfy any decree which a person receiving injuries from the use of the vehicle insured obtains against any person insured by the policy. He is however liable to satisfy the decree only when he has been served with a notice under sub-s(2) of S. 96 about the proceedings in which the judgment was delivered. It is for this reason that a notice under sub-section (2) of S. 96 was issued to the company and it is on account of the consequential liability in case the plaintiffs claim is decreed against Pesumal that the appellant challenged the correctness of the allegation that Pesumal was a person insured under the policy issued by it in respect of the Chevrolet car. It follows from a consideration of these various provisions for the Act-and this is not really disputed for the appellant-that if under the terms of the policy Pesumal can be said to be the person insured under para 3, the company would be liable to satisfy the decree if any passed against Pesumal.The provision is not really a classification of drivers but is a restriction on the right of the driver to recover any damages he had to pay, from the company. The driver who can get indemnity from any other company under any other policy is, under this contractual term, not to get indemnity from the company. The proviso thus affects the question of indemnity between a particular driver and the company and has nothing to do with the liability which the driver has incurred to the third party for the injuries caused to it and against which liability was provided by S. 94 of the Act and was effected by the policy issued by the company. The company, by agreeing with the person who effects the policy, to insure him against liability to third parties, takes upon itself the entire liability of the person effecting the insurance. It is open to the insurer not to extend this indemnity to the insured to other persons but if it extends it to other persons, it cannot restrict it vis-a-vis the right of the third party entitled to damages, to recover them from the insured, a right which is not disputed. A proviso meant to exempt certain persons from the general classification will have to be related to considerations affecting it and is not to be related to such classified persons right to indemnity from any other insurer. In this connection reference may be made to proviso (b) which cannot in any case be a proviso relating to the classification of persons to be indemnified. It provides that the person indemnified under para 3 will observe, fulfil and be subject to the terms, exceptions and conditions of the policy in so far as they can apply to him.20. We are further of opinion that cl. (4) of Section II of Pesumals policy with the other company does not make that policy to be a policy within the meaning of S. 94 of the Act in relation to the Chevrolet car by whose user Pesumal incurred liabilities sought to be established in the two suits. The paragraph indemnifies the insured, i.e., Pesumal, whilst personally driving any private motor car. It does not indemnify him against the liability incurred when driving any particular car and therefore, in view of what we have said earlier, Pesumals policy cannot be a policy of insurance in relation to the Chevrolet car as required by S. 94 of the Act. Such a policy and any indemnity under it cannot be used for sub-classifying drivers specified in the policy of the company.Thus the contract between the insured and the company may not provide for all the liabilities which the company has to undertake vis-a-vis the third parties, in view of the provisions of the Act. We are of opinion that one the company had undertaken liability to third parties incurred by the persons specified in the policy, the third parties right to recover any amount under or by virtue of the provisions of the Act is not affected by any condition in the policy. Considering this aspect of the terms of the policy, it is reasonable to conclude that proviso (a) of para 3 of Section II is a mere condition affecting the rights of the insured who effected the policy and the persons to whom the cover of the policy was extended by the company, and does not come in the way of third parties claim against the company on account of its claim against a person specified in para 3 as one to whom cover of the policy was extended.Lastly, we may mention that the question about the proper stage at which the question raised by the company in the Chamber notice is to be decided, came up for consideration at the hearing. We, however, do not propose to express any opinion on that point in thiscontention is met by the respondent on the ground that this proviso is not a limitation on the class of persons indemnified under para 3, that class being the drivers driving the Chevrolet car insured under the policy, but merely amounted to a condition affecting the liability of the company vis a vis the driver who was entitled to indemnity under any otherdo not agree with thisis true, but has no relevant effect on the question for decision before us. Asnani did insure his car with respect to liability against third persons. We have to see whether the company, on account of undertaking that liability can be said to have insured Pesumal on account of his driving the car with the permission of Asnani. The same may be said about the other contention for the appellant that there is nothing in the Act which makes it compulsory for an insurer to insist that the owner of the car takes out a policy in the widest terms possible covering any person who drives the car with his permission. The company did agree under the policy to indemnify drivers who drove the car with the insureds permission. The question is whether that undertaking covers Pesumal.