Motor Vehicles Act - Third Party Insurance Deemed To Be Transferred Along With Effective Control Over Vehicle In A Hire Agreement: Supreme Court

When a transport corporation hires a motor vehicle for use from its registered owner, the third-party insurance coverage will also be deemed to be transferred along with the vehicle, reiterated the Supreme Court in a recent decision.

The person who is having the effective control and command of the vehicle will be regarded as the 'owner'. Therefore, along with the vehicle it must be deemed that the existing insurance policy also remains transferred for the period of hire, as agreed.

Based on this principle, which was settled in the 2011 precedent  Uttar Pradesh State Road Corporation v. Kulsum & Ors, the Supreme Court overturned a judgement of the Allahabad High Court .

A division bench of Justices S. Abdul Naseer and Krishna Murari were deciding the issue - if an insured vehicle is plying under an agreement with the Corporation on the route as per permit granted in favour of the Corporation and in case of any accident during that period, whether the Insurance Company would be liable to pay compensation or would it be the responsibility of the Corporation or the owner. 

Background

The  Uttar Pradesh State Road Transport Corporation (Corporation) hired a bus which met with a fatal accident resulting in the death of one person. The legal heirs of the deceased raised a claim petition before the Motor Accident Claim Tribunal, Bahraich, Uttar Pradesh. The Corporation filed its written statement bringing on record the contract entered into between the Corporation and the bus owner as well as the factum of insurance of the bus with the Insurance Company. The Insurance Company filed its response admitting the existence of the Insurance Policy with respect to the said bus during the relevant period. The Tribunal fastened the liability on the Insurance Company directing it to pay compensation of Rs.1,82,000/- with interest at the rate of 6% per annum to the claimants.

The Insurance Company preferred an appeal before the Allahabad High Court mainly on the ground that it is not liable to pay the compensation as awarded by the Tribunal as the Corporation was operating the said bus when the accident took place. It argued that it was infact the Corporation who is liable to satisfy the Award. The Allahabad High Court held that the Insurance Comaanies are not liable to pay compensation to the third parties in the event the buses were operated underthe control of the Corporation. After that, the Corporation filed an appeal in the Supreme Court.

Findings

The Supreme Court overturned the judgement of the Allahabad High Court, fastening liability on the Corporation. It heavily relied on its earlier decision in Uttar Pradesh State Road Corporation v. Kulsum & Ors (2011), whereby it was held that effective control and command is the real test of ownership. Thereby under a hire agreement, the insurance policy is deemed to be transferred along with the vehicle. It had remarked

"If the Corporation had become the owner even for the specific period and the vehicle having been insured at the instance of the original owner, it will be deemed that the vehicle was transferred along with the Insurance Policy in existence to the Corporation and thus Insurance Company would not be able to escape its liability to pay the amount of compensation".

The Supreme Court also remarked in its' 2011 judgement that the compulsory insurance of the vehicle is meant to benefit Third Parties. The owner's liability to have compulsory insurance is only regarding Third Party and not to the property. Therefore, once the vehicle is insured, the owner and any other person can use the vehicle with the owner's consent. Section 146 of the Act does not provide that any person who uses the vehicle independently should take a separate insurance policy. The purpose of compulsory insurance in the Act has been enacted with an object to advance social justice, the Court had observed.

Therefore, relying on the 2011 judgement, the Supreme Court, in the instant matter, affixed the liability on the Insurance Company. It directed the Insurance Company to deposit Rs.1,82,000/-plus interest on the above compensation amount at the rate of 6% per annum from the date of filing of the claim petition till the date of deposit, in settlement of the award by the Tribunal. 

"..through the  definition of "vicarious liability" it can be inferred that the person supervising the driver is liable to pay the compensation to the victim. During such time, however, it will be deemed that that vehicle was transferred along with the insurance policy, even if it were insured at the instance of the original owner. Thus, the Insurance Company would not be able to escape its liability to pay the amount of compensation", the Court said.

Title: Uttar Pradesh State Road Transport Corporation v. National Insurance Company Limited & Ors.

Citation : LL 2021 SC 313

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