Motor Accident Claims - Supreme Court Absolves Car Dealer From Liability For Death During Test Drive By Manufacturer's Employees

The Supreme Court refused to hold a car dealer liable to pay compensation under the Motor Vehicles Act, 1988 for the death of persons caused due to an accident which took place while the vehicle was taken for a test drive by the employees of the manufacturer.

In this case, an accident took place during a test drive in which the dealer (appellant) of the Lancer car, the driver of the car, and the manufacturer were held to pay compensation jointly and severally by a Tribunal. However, the dealer challenged the liability on the grounds that the deceased was an employee of the manufacturer Hindustan Motors and even though there was a dealership agreement to transfer the ownership of the vehicle, there was no sale at the time of the accident. 

The court agreeing with the submissions of the dealer, held: "The appellant was neither the owner nor in control/ command of the vehicle at the time of accident, and the vehicle was being driven by an employee of M/s. Hindustan Motors, we are of the view that apart from the driver, M/s. Hindustan Motors alone was liable for the compensation awarded. Thus, the appellant should not have been burdened with liability to pay compensation." 

Brief facts 

A claim petition for death compensation was filed before the Tribunal by heirs and legal representatives of the deceased, who died. The claim petition was filed under Section 166 of the Motor Vehicles Act, 1988 against the driver of the offending vehicle, the manufacturer of the vehicle Hindustan Motors Private Limited and the dealer of Hindustan Motors, Vaibhav Motors (appellant).

The deceased was the Territory Manager of Hindustan Motors whereas, the driver of the vehicle was the Service Engineer. The accident took place when the vehicle was taken out for a test drive from the dealership of Vaibhav Motors. 

What did the Tribunal observe?

The Tribunal held that on the day of the accident, Hindustan Motors was the owner of the vehicle though Vaibhav Motors was in possession of the vehicle as its dealer. Therefore, it stated that Hindustan Motors as well as Vaibhav Motors would jointly and severally be liable for the compensation awarded. 

However, the legal heirs and representatives of the deceased (claimants) were aggrieved by the quantum of compensation awarded. They preferred miscellaneous appeals before the High Court.

The dealer also questioned the award to the extent it made him jointly and severally liable for payment of the compensation. However, no appeal was preferred by Hindustan Motors. 

Except for the appeal of the claimants, all other appeals were dismissed. By an appeal, the claimants' compensation was enhanced.

Arguments of parties  

Senior advocate Arup Banerjee argued that though the offending vehicle was manufactured by Hindustan Motors, there is no evidence to suggest that the vehicle was transferred to the appellant. The vehicle at the time of the accident was in the control and possession of Hindustan Motors. 

The appellant's counsel also submitted that Vaibhav Motors does not come within the definition of 'owner' under Section 2(30) of the Motor Vehicle Act. The Dealership Agreement between the appellant and M/s. Hindustan Motors is neither an agreement of hire­purchase nor of lease or hypothecation. Therefore, even if the dealer is taken to be in constructive possession of the vehicle, the dealer would not be its owner within the meaning of Section 2(30) of the M.V. Act. 

Lastly, Clauses 3 (b) and 4 of the Dealership Agreement, relied to fasten liability on the appellant, are in respect of defects in the vehicle and not in respect of any claim for compensation arising from an accident involving the vehicle. Moreover, there is no concept of possessory owner under the MV Act. 

Therefore, the liability for compensation is of the owner of the vehicle including the driver. 

Whereas, advocate Purti Gupta Hindustan Motors argued that the vehicle was sold to the appellant and an invoice was generated. Pursuant thereto, the car hearing temporary registration number was delivered to the appellant on a principal-to-principal basis. As the sale stood complete in all respects, the appellant was the owner of the vehicle on the date of the accident.

Further, Clause 3 (b) of the Dealership Agreement absolved Hindustan Motors. Moreover, the dealer was the possessory owner of the vehicle. 

Lastly, Hindustan Motors argued that even thought they did not file an appeal against the Tribunal's award, its liability can still be absolved by modifying the award in the exercise of its powers under Order 41 Rule Rule 33 of the Civil Procedure Code, 1908.

What did the Supreme Court decide?

Can the dealer of Hindustan Motors be jointly and severally liable with Hindustan Motors?

The Court looked at how various judgments have construed the definition of 'owner' to find whether Vaibhav Motors was in constructive possession of the vehicle as a dealer. 

It relied on Godavari Finance Company v. Degala Satyanarayanamma & Ors (2008), in which the court said: "We are not unmindful of the fact that ordinarily the person in whose name the registration certificate stands should be presumed to be the owner, but such a presumption can be drawn only in the absence of any other material brought on record or unless the context otherwise requires."

The court added: "What is, therefore, essential for passing an award is to find out the liabilities of the persons who are involved in the use of the vehicle or the persons who are vicariously liable...Therefore, there cannot be any doubt whatsoever that the possession or control of a vehicle plays a vital role.”

In Rajasthan State Road Transport Corporation v. Kailash Nath Kathori (1997), the court regarding the vicarious liability held: "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………..”

In the backdrop of these cases, it construed the definition of owner under Section 2(19) of the old Motor Vehicle Act, 1939 as not be exhaustive(a), the definition has to be construed in a wider sense based on the facts and circumstances of a given case (b) and (c) it must include, in a given case, the person who has the actual possession and control of the vehicle and under whose directions and command the driver is obliged to operate the same.

It was also observed that to confine the meaning of owner to the registered owner only would not be proper where the vehicle is in the actual possession and control of the hirer at the time of the accident.

The defining clause 'owner' is prefaced with the expression "unless the context otherwise requires". This the Court has constructed in Ramesh Mehta v. Sanwam Chand Singhvi & Ors (2004) as 'where the context makes the definition given in the interpretation clause inapplicable, the same meaning cannot be assigned'.

Therefore, the Court held that the 'owner' of a vehicle is not limited to the categories specified in Section 2(30) of the M.V. Act. But if the context so requires, even a person at whose command or control the vehicle is, could be treated as its owner to fix tortious liability. 

The Court on this issue upheld the Tribunal's findings to the extent that the deceased and the driver of the vehicle were Hindustan Motor's employees and they had taken the vehicle from Vaibhav Motors for a test drive. But it found that there was no evidence to suggest that Vaibhav Motors was in constructive possession of the vehicle. 

The Court stated: "There is nothing on record to suggest that the dealer had the authority to deny those two persons permission to take the vehicle for a test drive. More so, when they were representatives of the owner of the vehicle. In these circumstances, we can safely conclude that at the time of accident, the vehicle was not only under the ownership of M/s. Hindustan Motors but also under its control and command through its employees. Therefore, in our view, the appellant, being just a dealer of M/s Hindustan Motors, was not liable for compensation as an owner of the vehicle."

Was the liability of Hindustan Motors absolved through the Dealership Agreement?

To answer this question, the court considered Clauses 3(b) and 4 of the Dealership Agreement, which reads: "3 (b) After the motor vehicles are dispatched/delivered the Company's liability in respect of any defect in the motor vehicle will be limited to the Company's obligations under the warranty clause and the Company will have no other liability and all liabilities other than the one under warranty as aforesaid shall be to the account of the Dealer.

4. After the motor vehicles are delivered, the Company's liability in respect of any defect in the motor vehicle will be limited to the Company's obligation under the warranty clause and the Company will have no other liability. All liabilities other than the one under warranty as aforesaid shall be to the account of the Dealer.” 

The Court holds: "A careful reading of the aforesaid clauses would indicate that they deal with company's (M/s. Hindustan Motors') liability in respect of any defect in the motor vehicle. They limit the company's liability in respect of any defect in the motor vehicle to the company's obligations under the warranty clause. The use of the words “and the company will have no other liability and all liabilities other than one under warranty as aforesaid shall be to the account of the Dealer”, in absence of specific exclusion of tortious liability arising from use of such vehicle, cannot absolve the owner of the motor vehicle of its liability under the Motor Vehicles Act and shift it on to the dealer when the vehicle at the time of accident was under the control and command of the owner (i.e., M/s Hindustan Motors) through its own employees as found above."

Can Hindustan Motors question its liability without challenging the tribunal's order?

The third issue was whether Hindustan Motors without filing a separate appeal, or cross-objection could take recourse to Order 41 Rule 33 of the Code of Civil Procedure to challenge the portion of the award which made it liable, jointly and severally. 

The court stated that although the issue has been rendered academic given the findings in the above issues, it stated: "It has been consistently followed, it is clear that for exercise of the power under Rule 33 of Order 41 CPC the overriding consideration is achieving the ends of justice; and one of the limitations on exercise of the power is that that part of the decree which essentially ought to have been appealed against, or objected to, by a party and which that party has permitted to achieve a finality cannot be reversed to the advantage of such party."

Therefore, the court concluded: "Tribunal had returned a finding on issue no.3 that M/s. Hindustan Motors had provided no evidence to show that the vehicle manufactured and owned by it was sold by it to the dealer. Admittedly, its own employees /officers were in control of the vehicle at the time of accident and, therefore, M/s. Hindustan Motors was held jointly and severally liable for the compensation awarded.

This part of the award operated against it and was backed by a finding of ownership. By not challenging the same, through an appeal or cross­objection, M/s Hindustan Motors has allowed it to attain finality. Therefore, in our view, M/s Hindustan Motors cannot be allowed to question the same now. Issue no. (iii) is decided in the aforesaid terms."

Remedy

The Court held that it could not set aside the award since the High Court upheld it and in fact, enhanced the quantum of the compensation. But it held: "But we make it clear that if the awarded amount, or any part thereof, has been paid, or is paid, by the appellant, the appellant shall be entitled to recover the same from M/s. Hindustan Motors along with interest at the rate of 6% p.a., with effect from the date of payment till the date of recovery."

Case Title : Vaibhav Jain v. Hindustan Motors Ltd

Citation : 2024 LiveLaw (SC) 649

Appearances: Senior advocate Arup Banerjee for Appellants 

Advocate Purti Gupta for Hindustan Motors

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