Raghuvir, J.
1. (for himself and on behalf of Sardar Ali Khan, J.) C.M.A. No. 302 of 1976) : Naseeruddin Hussain was an employee in the Directorate of Industries and Commerce. He was on his way to office on a cycle on October 11, 1973. At 10-45 a.m. be was at Shah Inayat Ganj Police Station. The vehicle (lorry) ADT 263 was in front of him on the road. There was another lorry APT 7879 behind him. Mannu Singh, a Police Constable No. 2626 of Shah Inayat Ganj Police Station, stopped ADT 263. The Constable directed the driver of the vehicle to proceed on the 'correct side' of the highway. The driver of Apr 263 thereupon reversed the motion of the vehicle. He swerved the vehicle and dashed APT 7879 and hit Naseeruddin. Due to injuries received at the accident on the same day at the hospital Naseeruddin died. His spouse and her eight children claimed damages before the Motor Accidents Claims Tribunal. They were awarded Rs. 32,000/- towards compensation. The Tribunal, inter alia, ordered M. Kondaiaii (the purchaser of ADT 263) to pay the amount to the dependents of the deceased. Aggrieved thereby, Kondaiah filed the above appeal.
2. In this appeal, the findings reached by the Tribunal on the points of negligence or on the quantum of compensation are not assailed. The issue raised relates to ownership of vehicle ADT 263.
3. M/s. Rajkamala Transport Company were the original owners of the vehicle. The Transport Company are alleged to have sold the vehicle on March 14, 1973, under agreement, Ex. B. 1, and received Rs. 85,000/- from Kondaiah towards sale consideration of the vehicle Rs. 60,000/- were paid on the date of agreement and balance of sale price Rs. 25,000/- on March 29. The vehicle was delivered to Vendee on the former date. The Vendor had a road permit for the vehicle. The permit was also delivered to the Vendee with the vehicle. The vehicle was insured for third party risks on July 30, 1973 for Rs. 50,000/-. The insurance policy was not transferred to the Vendee. The Vendee or Vendor did not inform the insurance company of transfer of the vehicle. The facts show the Vendee used the vehicle between March and October of 1973 without obtaining a fresh insurance policy to protect third party interests. The Vendee further did not lodge before the registering authority any petition under the Motor Vehicles Act (Act 4 of 1939) under Section 31 for mutation of vehicle certificate in his name.
4. Before the Tribunal, the factum of delivery of the vehicle on March 14 and payment of Rs. 85,000/r to the Vendor wag not disputed, The Vendee, however, in resisting the claim relied on certain clauses of agreement Ex. B. 1 to show title of the vehicle remained with the Vendor. The Vendor (the transport company) in the case, however, maintained to have sold the vehicle on March, 14, 1973 for consideration. The Vendor pointed out the employee of the Vendee was at wheel of the vehicle at the accident. Due to the forlorn act of the driver, it was alleged, the accident occurred. Therefore, the transport company contended compensation was payable by the Vendee and the Vendor was not in law liable to pay the compensation.
5. The insurance company with whom the vehicle was insured on July 30, 1973 for third party risks asserted the insurance authorities were not aware of the sale of vehicle. The Vendor who had insured with them did not inform them ; the vehicle was under the control of the Vendee on October 11, 1973, therefore, Vendee is responsible for payment of compensation The insurance company further contended as a result of sale of vehicle the policy issued by them on July, 30 to the assured (the Vendor) stood terminated in law and for that reason the insurance company is not liable to pay any compensation to the dependants of the deceased.
6. Thus, on pleadings before the Tribunal eight issues were raised : '1. Whether the drivers of the vehicles ADT 263 and APT 7879 drove the said vehicles in a rash and negligent manner on 11-10-1973 at about 10-45 am. resulting in the death of Naseeruddin Hussain. 2. Whether the 1st respondent sold the vehicle ADT 263 on 14-3-1973 to Maddineni Kondaiah as contended by him, 3. Whether the registration certificate is transferable in the name of Maddineni Kondaiah, if not, what will be the effect. 4. Whether the petition is bad for nonjoinder of the parties 5. Whether the petitioners are entitled to Rs. 1,00,000/-as general damages are claimed. 6. Whether all or any of the respondents are liable to pay compensation to the petitioners and if so, in what amount. 7. To what reliefs are the petitioners entitled. 8. Whether sale of the motor vehicle ADT 263 by respondent No. 1 to respondent No. 7 has the effect of absolving R-8 from any liability to pay compensation.
7. The Tribunal in the judgment under appeal on February 19, 1976 recorded the vehicle was plied negligently by the driver of the vendee in the result at the accident on October, 11 Naseeruddin died. This was the answer recorded as answer to issue No. 1. On issues Nos. 2 and 3 it was held that agreement under Ex. B. 1 has the 'effect of absolving' the insurance company from liability to pay compensation. Since necessary parties were added pending trial no finding was warranted on issue No. 4. As to issue No. 5 compensation in Rs. 32,000/- was faxed payable to the dependants of the deceased. On issues Nos. 6 and 8 it was held the Vendee, M. Kondaiah the appellant, is liable to pay the amount. Under the general issue No 7 then Tribunal ordered Rs. 32,000/- with proportionate costs and interest at 6% per annum from the date of petition till amount was paid. Hence, appeal by the Vendee.
8. The appeal was heard by a Division Bench of this Court on February 15, 1978. The Bench found the decision (to which one of us Raghuvir, J. is a party) in Haji Zakaria v. Naoshir Cama : AIR1976AP171 was decided per incuriam and added the case in N. Kanakalakshmi v. R.V. Subba Rao (1972) 1 APLJ 249 was not noticed in the former case. The appeal, therefore, was directed to be beard by a Full Bench. In the order of reference, no question of law was framed. The reference was not made to decide any question of law. The reference was to hear the entire case and decide the entire case by the Full Bench.
9. this case was heard with five other cases. The counsel appearing in all cases were heard on all questions the counsel were interested to advance arguments. Numerous decisiocs tendered by this Court were cited. We were bewildered at the scenario to find conflicting decisions by Division Benches. In some cases single Judge have not followed Division Bench decisions. In fact no question was framed in the reference did not facilitate discussion issues that were mooted at the debate. In the appeal, the dependants of the deceased ate patties; the Vendor is impleaded ; the person who was at the wheel on the date of accident who was held guilty of negligence is impleaded. The insurance company and its respective bratces connected with the case are also impleaded. Now to appreciate the issues in the appeal one or two decisions may be looked into.
10. In Hazi Zakaria v. Naoshir Cama (cited supra) this Court held liability to damages arises when death or injury to third paity is caused by the user of vehicle. That principle, this Court held, was subject to 'no limitations' like negligence of the driver. To introduce 'any Imitations' was held 'opposed' to the provisions of the Motor Vehicles Act 4 of 1939 (the Act). This view of the principle was shared by many High Courts in India. There was also a contrary view expressed in some cases. The cases relevant to the two views are referred in Minu B. Mehta v. Balkrishna AIR 1977 SC 1248. That case was an appeal arising out of a case decided in AIR 1977 Bombay 53, on the same point on par with the view of this Court. The Supreme Court in that case adopted the view to hold negligence is necessary to be proved before owner of vehicle or insurance company is made liable in law to pay compensation. That is bow the view of this Court in Hazi Zakaria v. Naoshir Cama case (supra) no more holds the field on the subject. The next point dealt in the case was whether insurance policy lapsed on the death of the insured. As to that question it was held 'we see nothing either in the statute or in the actual terms and conditions of the policy which was still in force on the date of accident which would prevent the legal heirs from succeeding to the car as well as the rights there under' (Para 29). The contention of the insurer that its liability to cover third party risks lapsed with the death of the insured in particular was referred and rejected.
11. In a case of this Court, H.I. Insurance Co. Ltd. v. P. Ankaiah (1972) 1 APLJ 47, the accident in the case occurred on September 9, 1963. The vehicle involved was APJ 977. Ramula, a boy of 19 years, died at the accident. The Tribunal awarded compensation of Rs. 20,000/-. On appeal a single Judge of this Court fixed compensation at Rs. 7,200/-. The variation affecting compensation was not ordered because under Section 96 the insurance company could not have challenged the quantum of compensation. The appeal, therefore, was dismissed. The Letters Patent Appeal Court against the order of the single Judge ordered compensation to be paid in Rs. 7,200/-. The question as to 'defences' of the insurance company on which the single Judge dismissed the appeal, the Bench held Section 96 applied to suits not to his arising under the statute Alternatively, the question was considered from the standpoint whether Section 96 was relevant to claims before the Tribunal, Notwithstanding a judgment of the Supreme Court in B I.G. Insurance Co. v. Ithar Singh AIR 1959 SC 1331 (to which we will return later) the Bench held it was open for the insurance company to question the quantum of compensation before the Accidents Tribunal. Clause (2), Section 96 was held not a bar to raise any defence. The view expressed by the single Judge on this point was reversed. In view of the Supreme Court case whether the reference to Full Court is justified is a subject we do not wish to comment at (his aye hour of the day. We accept to consider the entire appeal.
12. It may now be necessary to repeat few facts to focus the questions noted at the debate. The vehicle ADT 263 was insured for third party risks for Rs. 50,000/- on July 19, 1973 by the Vendor. On March 14, 1973 the policy thus was subsisting. The insurance company was not aware of sale of the vehicle. Therefore, the insurance company contended due to the sale in Ex. B. 1 between the parties the policy of the vehicle obtained by the assured with the insurance company lapsed. This contention of the insurance company was opposed by the Vendee to hold there was no concluded sale of the vehicle under Ex B. 1. Besides the sale to be effective it was argued the certificate issued under the Act should have been mutated in the name of the transferee under Section 31 of the Act. In the absence of mutation no transfer occurred. The title of the vehicle was not divested from the vendor. The specific contention of the Vendee is; no divestment of title occurred under the terms of Ex. B. 1.
13. The latter question is posed as a fact and put at the forefront for decision. The Vendee's counsel therefore, proffered the contention was a preliminary issue and argued in law there cannot be effective transfer unless the appropriate certificate is obtained on application under Section 31 of the Act. This issue in this form is no more res integra, for such a contention was rejected in Panna Lal v. Chand Mal AIR 1980 SC 871 by the Supreme Court. The Vehicle (AJM 455) in that case was owned by Manak Chand who sold on February 17, 1956 to Lalchand and Tarachand. The two in turn sold the vehicle to Panna Lal, who in a civil suit complained to have paid Rs. 5,000/- for the vehicle as sale price. Lal Chand and Tarachand have not taken steps in spite of notices to them. They did not transfer the vehicle by making appropriate application to the registering authority. Therefore, he laid the suit for recovery of Rs. 5,000/- paid for lorry and Rs. 1,800/- towards interest or as damages.
14. The Supreme Court considered the appropriate provisions of the Act and held for transfer of ownership of a motor vehicle, mutation of certificate was not necessary. Panna Lai did not move the authority under the Act by filing application under Section 31 of the Act and for that reason he was not allowed to claim refund of purchase money. The discussion in the case shows a vehicle can be sold and purchased without following the procedure prescribed in Section 31 of the Act. In other words, to make the purchaser of a vehicle completed, it is not necessary a fresh certificate should be obtained by the transferee or certificate of the Vendor should be cancelled by the registering authority under the Act.
15. The decision of this Court in Kanakalakshmi v. R.V. Subba Rao (1972) 1 APLJ 249 indirectly is to the same effect. The vehicle in the case was sold, therefore, the owner of the vehicle was not made liable to pay compensation 'merely' because the Vendor's son continued in the certificate as owner. This was emphasized by stating between seller of the vehicle and insurance company as a result of sale the policy 'automatically lapsed,' In the absence of an express stipulation to the contrary in the policy 'ownership of the car with the insured' (P. 255) was considered basic or fundamental for subsistence of insurance policy. The point was elaborated further 'once the subject-matter of the policy was gone...by sale or transfer, the policy automatically lapsed and there was nothing for the insurer to avoid it.' A similar premise was accepted in J.C. Chinnarayudu v. N. Lakshmamma AIR 1980 Andhra Pradesh 143 but on facts it was held there was no concluded sale. In one of the unreported decisions (AAO 562 of 1976 dated November 15, 1977) reported in 1978 Ace CJ 366 (Andhra Pradesh) cited the facts show APK 1143 vehicle was involved in an accident resulting in the death of one Vijaya Anjamma in that case. The transfer of vehicle was held not proved, therefore, the instant issue was not considered. Thus the Courts did not accept (as a principle) the vehicle should be mutuated in the records of motor vehicle authorities for completion of sale of a motor vehicle.
16. In the Instant case it is argued on behalf of Vendee under the terms of Ex. B. 1 no transfer was affected. To support the contention two clauses under Ex. B. 1 were relied on Clause (4) of the agreement reads as under: 'That the said vehicle will be remained registered in the name of the seller till the transfer of permit affected in the Secretary, State Transport Authority Hyderabad. Thereafter, immediately the purchaser shall get the vehicle transferred in his name. Till such time, the seller shall appear before the concerned authorities in the capacity of owner, if need be.' Clause 5 reads: 'the seller sold the said lorry along with the composite permit.' Based on the two clauses in Ex. B. 1 the counsel for Kondaiah emphasized there was no concluded sale. M/s. Rajkamal Transport Company, on the other hand, argued the vehicle was delivered on March 14, 1973. The consideration was received in two inslalments by them. The vehicle was under the control of the Vendee. The person who was responsible for the accident on October 11, 1973 was the employee of the Vendee. Therefore, the transport come any is not responsible to pay compensation to the dependants of the deceased. We have earlier referred to contentions of the insurance company therefore, it is not necessary to reiterate their pleas once again.
17. The question of fact is posed for decision at forefront, for it is argued in the event of a decision on the fact in favour of the Vendee, no other question survives for consideration. In such a case, the title remains with the Vendor. The Vendor's insurance of third party risks comes to the aid of third parties. The insurance company in law will be liable to discharge the order of payment of Rs. 32,000/- to the dependants. The issue ralised is rot difficult for insurmountable to record a finding as a fact on the question of sale, one way or the other. Yet, 1 think it not necessary to record a finding having regard to our decision on the next question whether the insurance company is responsible to pay damages on the facts of the instant case. This course is adopted to decide the question of law, for it has become common practice of purchasers of vehicles to ply vehicles without obtaining a fresh policy in their name after purchase of vehicles to the great detriment of third parties. Such a practice is found adopted as a common course in cases before courts. The result is in numerous cases we see one issue get entangled with the other ail to the detriment of 'injured' or to 'dependants.' The necessity for a Full Bench actually was felt in R. Chinna Rao v. Reddi Lorudu AIR 1980 Andhra Pradesh 279 but in that case if held : 'we do not propose to refer the matter to a Full Bench as we are not accepting the contentions of the appellants even with regard to the quantum.' For a long period the decision on the question remained dormant in the country and in this Court causing enormous difficulties to litigant public. Therefore, the question requires to be decided by the Full Beech. If the question of fact relevant to the instant sale under Ex. B. 1 is decided and the question of law is considered later, in such a contingency it is probable the decision is likely to suffer the vice of obiter dicta. To avoid such a criticism we have decided not to record a finding on the question relevant to sale and decide the question of law. If we decide the question of fact (of sale) and leave aside the question of law valuable time of courts in future is also likely to be continue to be wasted. Therefore, with a view to put an end to the stalemate at least in this Court it is expedient to decide the legal question to which we will make immediate return.
18. The principal (legal) question in the case turns on the interpretation of Clause (2) oft Section 96. The question is what defences are open to insurance company to raise per clause (2) of the section This question was directly answered by the Supreme Court in B.I.G. Insurance Co. v. Itbar Singh case (supra). The question was answered to hold the insurance company cannot raise defences other than set out in Clause (2) of Section 96 ('the company is not entitled to take any defence which is not specified in Clause (2)' Para 8). This conclusion was supported as the intention of Act IV of 1939. Notwithstanding such a clear pronouncement the decision was interpreted to a contrary effect by a Division Bench of this Court in H.I. Insurance Co. Ltd. v. P. Ankaiah (1972) 1 APLJ 47. Precisely to meet the decision in this case, we wish to cover this subject in elaboration though the point is covered by the decision of the Supreme Court.
19. Now the entire issue as to scope of Clause (2) of Section 96 arises in adversorial system. In our jurisprudence the interpretation of Clause (2) in narrow terms provokes certain conceptual difficulties. In any proceeding where a person is impleaded in our jurisprudence such a person is entitled to raise all defences which such person is advised to take. The insurance company is no exception to that principle. In common law insurance company is not impeded by any known principle of law. The Supreme Court in the above case B.I.G. Insurance Co. v. Itbar Singh interpreted the provisions of the Motor Vehicles Act and held the insurance company cannot take defences other than specified in Clause (2). The defences of insurance company were thus narrowed down. There is elaborate discussion in the case to adopt such a measure and to justify such a course of action.
20. It is seen in our country often owners of vehicles are not anxious to protect third party rights. They do not obtain policies to cover third party risks, though under the Act it is obligatory. In cases where the vehicle is not insured by the transferor or the transferee an altogether difficult situation emerges which we are not considerating in this case. Instances are legion where after sale without covering third party risks the purchasers ply vehicles on the highway. Law journals are replete with instances of cases posing problems and courts considered how best to remedy the victim who due to mistakes of drivers of vehicles on highways either get injured or killed. The pedestrians generally get injured by vehicles. They are simply left high and dry without a remedy even against the insurance company. The Supreme Court therefore, emphasized the role of the insurance company in this area. The transferor and the transferee are noted not financially solvent to redeem orders or discharge decree passed against them. The fact that it is obligatory on the owners of the vehicle to insure for third party risks it indicated the liability of the insurance company, finally, it is held to serve ends of justice. Clause (2) of Section 96 should be interpreted in narrow terms to hold insurance company cannot raise defences other than what is set out in Clause (2).
21. In the instant case the insurance company is impleaded. The insurance company cannot raise defences other than Clause (2); they cannot raise the defences that the policy has lapsed because of the sale of ADT 263 ; they cannot contend it was the negligence on the part of the transferee, therefore, the insurer company is not liable. They cannot contend their contract is with the transferor, therefore, are not responsible to redeem the compensation payable by the transferee. They cannot raise any of the defences, for such defences are not contemplated under Clause (2) of Section 96. This narrow interpretation is seriously assailed before this Court. That ground need not be covered again for enough justification is provided in the discussion of the case.
22. To justify the principle, the Supreme Court considered all prospective. The Court said to put such an impediment on defence was 'equitable' because the insurance company was a business house. They have profit motive in doing business. They can always arrange their business to suit their profits. Therefore, it is held just to put a narrow interpretation, the issue was considered from the stand point of 'luck,' if such an impediment is placed on the defences of the insurance, it was observed may be it is 'bad luck' for insurance company. But luck was set off as a hazard in business ventures. These perspectives were expressed in the following passage : 'We are furthermore not convinced that the statute causes any hardship..Avoid all hardship if any, by providing for a right to defend the action in the name of the assured and this he has full liberty to do. Secondly, if he has been made to pay something which on the contract of the policy he was not bound to pay, he can under the proviso to Sub-section (3) and under Sub-section (4) recover it from the assured. It was said that the assured might not be able to recover anything from him. But the answer to that is that it is the insurer's bad luck. In such circumstances the injured person also would not have been able to recover the damages suffered by him from the assured, the person causing injuries. The loss had to fall on some one and the statute has thought it fit that it shall be borne by the insurer. That also seems to us to be equitable for the loss falls on the insurer in the course of his carrying on his business, a business out of which he mikes profit and he could so arrange his business that in the he result net would never suffer a loss.
23. Five years later in New Asiatic Insurance Co. v. B Pesumal : [1964]7SCR867 . Sections 94, 95 and 96 of the Act were again reviewed to hold : 'Chapter VIII of the Act, it appears from the heading, makes provision for insurance of the vehicle against third-party risks, that is to say, its provisions ensure that third-parties who suffer on account of the user of the motor vehicle would be able to get damages for injuries suffered. Their ability to get the damages will not be dependent on the financial condition of the driver of the vehicle whose user led to injuries. The provisions have to be construed in such a manner as to ensure this object of the enactment.' (Para 12).
24. In the above case, Aswani owned vehicle AA 4431. He was at the wheel of the vehicle. Two of his friends, Mehrotra and Murli who were at his side when the vehicle was involved in an accident and the two were injured. The car was found insured for third party risks. The question was: whether the third parties included the two friends who were passengers in the vehicle. That question was answered in affirmative, because the car was insured for third party risks, The expression 'third parties,' it was held, included Aswani's two friends (Para 21). In adopting such an interpretation importance of insurance policy was again highlighted : 'we are of the opinion that once 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 the provisions of the Act is not affected' (Page 1741). This was laid to reject the contention placing reliance on Section 2 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 affected the policy and the persons to whom the cover of the policy was extended by the company and dees 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.' True, it is, the provisions of statute are stretched by implication in favour of 'third parties.', This was done to strengthen the remedies of 'third parties.' This case was followed by this Court in R. Chinna Rao v. Reddy Lorudu, case (supra). The decision in H.I. Insurance Co. Ltd. v. P. Ankaiah was not followed.
25. For all the aforesaid reasons the decision in HI Insurance Co. Ltd. v. P. Ankaiah we hold does not lay down correct law, therefore, it is reversed. A single Judge of this Court in United Fire and General Insurance Co. Ltd. v. P. Parvathamma AIR 1981 Andhra Pradesh 227 held that insurance company cannot urge 'any plea other than those that are enumerated' in Clause (2) of Section 96. But another single Judge of this Court in New India Assurance Co. v. M. Ramanamma (1982) 1 APLJ (HC) 124 commented Parvathamma's case is 'confined only to that case.' The decision in New India Assurance Co. v. M. Ramanamma, case (supra), for reasons stated earlier is hereby reversed. What remedies are open to the insurance company when compensation awarded is more than the amount in the insurance policy does not arise in the instant case, therefore, that question is kept open.
26. There is a decision of a single Judge in H.I. Insurance Society v. P.R.N. Reddi : AIR1972AP151 which was offered for acceptance. The sale in that case was held : 'even assuming that there was sale of the vehicle by the 1st respondent in favour of the 2nd respondent on September 13, 1968 as alleged by the 1st respondent and the third respondent the mere transfer of ownership does not necessarily to be an end to the liability of the insurance company.' To express an opinion when as a fact there was no transfer in our view is obiter. We have already indicated we are not deciding the question of sale, therefore, are not deciding the issue whether an insurance policy lapsed as a result of sale as held in Kanakalakshmi v. R.V. Subba Rao case (supra).
27. To sum: It is not necessary to decide the question on facts whether there was a sale under Ex. B. 1 of the vehicle ADT 263 in favour of N. Kondaiab. We hold vehicle ADT 263 was insured on July 30, 1973 for Rs. 50.000/- for third party risks. Therefore, an amount of Rs. 32,000/-awarded to the dependants of Naseeruddin is payable by the insurance company. The order of the Tribunal for aforesaid reasons is modified to hold. the insurance company and the insured are liable to pay the amount of compensation.
28. The appeal is allowed and modified as indicated above. No costs.
(C.M.A. No. 74 of 1976).
Raghuvir and Sardar Alikhan, JJ.
29. The above appeal has been directed to be heard by the Full Bench along with C.M.A. No. 302 of 1976. The facts in the appeal show N. Raju, aged 15 years died on the night of April 10, 1972 while he was asleep on a sand heap in front of his house at Lothukunta, Alwal at Secunderabad. The sand heap belonged to their neighbor who collected it for construction of a house. On that night vehicle APT 7600 came to the premises to unload some more sand over the heap. G. Balaram was at the wheel of the vehicle, who while reversing the vehicle ran over Raju who was asleep. He instantaneously died. His mother, Ranganayakamma, before the Claims Tribunal claimed Rs. 35,000/- towards compensation. She was awarded Rs. 8,000/-. The vehicle was insured with the Concord of India Insurance Company Limited. The company later merged in the United India Fire and General Insurance Company Limited.
30. M.A. Hameed was the owner of the vehicle. He contested the claim. He averred to have purchased the vehicle on August 26,1972 not on March 26, 1972 before the accident. The Claims Tribunal found he purchased it on March 26, 1972. There is no appeal against that finding. There is also no appeal by Ranganayakamma as regards the amount of compensation awarded to her.
31. The above appeal is lodged by the Insurance Company. The issue raised is the assured sold away the vehicle on March 26, 1972 to M.A. Hameed, therefore, the insurance company is not liable in law to pay compensation. The assertion is founded on the principle as the vehicle is sold the policy of the vehicle therefore, lapsed.
32. This question was considered elaborately in C.M.A. No. 302 of 1976 what defence can be raised by the insurance company under Clause (2) of Section 96 of the Motor Vehicles Act Following the above decision, we hold the insurance company cannot absolve its liability as such a defence is not available to the insurer under the statute. We have set out full reasons in C M.A. No. 302 of 1976, therefore, we need not repeat them over again. The above appeal is dismissed. There shall also be a decree against the insured and the decree of the lower Court is modified accordingly.
C.M.A. Nos. 302 of 1976, 74 of 1976.
Kodandaramayya, J.
33. A reference to this Full Bench is made to resolve the conflict between two judgments reported in N. Kanakalakshmi v. R V Subba Rao, case (supra) and in Hazi Zakaria v. Naoshir Cama, case (supra) Though I agree with my learned brothers in their conclusions, in view of the fact that the question raised before us is of general interest and considerable importance in the law of Motor Car Insurance. I prefer to record my reasons separately.
34. It would be convenient to deal first with the question of law argued before us. The facts of these cases are fully given by my brother Raghuvir, J. in his judgment.
35. The main question debated before us is whether the sale of the vehicle by the insured has the effect of causing lapse of the policy. Sri M. Jagannadha Rao who addressed the main argument raised broadly three contentions viz (1) The transfer of vehicle to the purchaser is not complete unless the certificate of registration is issued in the name of the transferee. (2) The transfer of vehicle does not put an end to the rights of the third parties who are injured to claim compensation against the insurance company in view of Section 95(2) of the Motor Vehicles Act. (3) As per Section 96(2) of the Motor Vehicles Act, the Insurance Company cannot raise the plea that the policy is lapsed on the transfer of the vehicle.
36. On the first question we refer Sections 22 and 31 of the Motor Vehicles Act 4 of 1939 (hereinafter called the Act). No doubt, those provisions enjoin both on the transferor and transferee to report the factum of transfer of the vehicle to the registering authority and the owner is required to register the vehicle. We are not persuaded to hold on a careful reading of the said provision that the transfer is incomplete till the registration is effected in favour of the purchaser. The transfer of vehicle is governed by the provisions of Sale of Goods Act. In the absence of any agreement to the contrary payment of price, and delivery of vehicle make the sale complete, and the title passes to the purchaser. The obligation to register the vehicle is for the purposes of controlling and regulating the movement of vehicles by the authorities under the Act and they do not stand in the way of passing title to the purchaser. This is the view taken by the Supreme Court in Pannalal v. Chand Mal : AIR1980SC871 and heace it is unnecessary to go into further debate on this question and accordingly we reject this contention.
37. On the second question the preponderance of the authority is in favour of the contention of the insurance company that on such transfer the policy lapses. In fact though initially the Madras High Court and Punjab and Karyana High Court in Madras Motor Insurance Company v. Md. Mustafa : AIR1961Mad208 and New India Assurance Co. Ltd. v. Moti Ram 1967 Acc CJ 312, took the view that the transfer does not put an end to the 'undertaking of the insurance company to indemnify the third parties, those judgments are dissented by those very High Courts themselves respectively and subsequently other High Courts are also uniform in holding that the transfer of the vehicle by the insured will make the policy lapse and the liability of the insurance company will cease. So far this Court is concerned Chinnappa Reddy, J., sitting singly as he then was, pressing over this Court followed Madras Motor Insurance Company v. Md. Mustafa, and held that mere transfer of ownership does not necessarily put an end to the liability of the insurance company of the third party risks. A Division Bench of this Court consisting of Krishna Rao, J. and Madhava Reddy, J. in N. Kanakalakshmi v. R.V. Subba Rao, case (supra), held following the later view expressed by the Madras High Court in M. Bhoopathy v. Vijayalakshmi : AIR1966Mad244 , that once the subject-matter of the policy was gone as when parted by the insured by sale or transfer, the policy automatically lapsed and there was nothing for the insurer to' avoid it. However, another Division Bench consisting of Sambasiva Rao, ACJ as he then was and one of us Raghuvir, J., in Haji Zakaria v. Naoshir Cama : AIR1976AP171 took the view that the liability under Section 94 is a statutory liability and it will not come to an end with the death of the insured and the insurance company is liable under third party risks even thereafter. No doubt we are not concerned with the case of death of the Insured. Section 102 which is special provision for survival of cause of action arising out of the event after the death of the insured was explained not to stand in the way even in respect of the accidents that took place after the death of the insured. However, it must be stated that the view expressed in the said judgment that there need not be any proof of rash and negligence of driving to pay damages to the injured or to the legal representatives of the deceased person was dissented by the Supreme Court in Minu B. Mehta v. Balakrlshna : [1977]2SCR886 . But this will not preclude us to adopt the view expressed on the other question if we are satisfied with the same. Further, another Division Bench of this Court in J.C. Chennarayudu v. N. Lakshmamma AIR 1980 Andhra Pradesh 143 took the view that there must be a completed transfer of the interest in the vehicle before this principle can be invoked by the insurance company. The other High Courts took the view that the policy will lapse on transfer as there is no insurable interest of the assured on such transfer. (Vide Culab Bai Damodar Tapse v. Peter K. Sundar 1975 Ace CJ 100 (Bombay) Oriental Fife and General Insurance Co. Ltd. v. Vtmal Roy : AIR1973Delhi115 ; South India Insurance Co. Ltd. v. Purha Chandra Misra : AIR1973Ori166 : Balwant Singh v. Jhannubai 1980 Ace CJ 126 (Madhya Pradesh), Oriental Fire and General Insurance Co. Ltd. v. Meena Sharma 1975 Ace CJ 335 (Punjab and Haryana) and Hema Ramaswami v. K.M. Valarence Panjani : AIR1981Mad174 . It is unnecessary to refer to these judgments as the view is unanimous. We do not propose to extract those dictas in several judgments of different High Courts. It is enough if we state that the basic rationale of this view is that the insurance policy is founded on personal contract of indemnity and on the transfer of the vehicle the policy comes to an end as the transferor loses his insurable interest. Most of these cases followed the three judgments of Courts of England including the judgment of House of Lords in Rogerson v. Scottish Automobile and General Insurance Company Ltd 1931 All ER (Reprint) 606 in support of this view. A passage from Shaw cross on, 'Motor Insurance,' was also relied on for the proposition that only parties to the contract and not the transferees have rights under the contract.
38. We venture to differ with this view as this approach did not take into account composite nature of the insurance policy and further Sections 31 and 94 of the Act were not given due effect while examining the rights of the third parties for whose benefit the compulsory insurance has to be made to the vehicle.
39. It is true that a contract of insurance is a contrary of indemnity but it is not necessarily a contract of indemnity. Vide Dalby v. India and London Life (1854) 15 CB 365.
40. A perusal of Section 94 clearly discloses that the statute intended to give protection to a third party in respect of death or bodily injury or damages to their property while using the vehicle in a public place. Hence the insurance of the vehicle under Section 94 read with Section 95 is made compulsory. Those two provisions do not extend the compulsory insurance to the vehicle or to the owner. In fact these two provisions made exception to protect the life or limb of the driver of the vehicle or the passenger in the vehicle except public service vehicle. Thus, it is seen the compulsory insurance is for the benefit of third parties. Hence, it is clear that the insurance policy covering three kinds of risks i.e. person (owner), property (vehicles) and third parties is clearly in the nature of composite one. The public liability (third party liability) alone is compulsory. While considering whether the transfer of the vehicle would put an end to the policy, we must see whether such a composite policy will lapse putting an end to all the three kinds of risks undertaken by the insurance company. For this purpose Section 95(5) must be looked into:
Notwithstanding anything elsewhere contained in any law, to person issuing a policy of insurance under this section shall be liable to indemnify the person or classes of persons 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.
This section is clearly based upon provision of English statute. This section is analogous to the provision in England where the third party's right against Insurers Act 1930 was enacted to confer on third parties right against the insurer of the third party risks. The present Act made a specific provision in case where the insurer becomes insolvent or dies (vide Sections 10, and 102 of the Act) to obviate any doubt or dispute in respect of such events. Section 95(2) intended to cover two legal objections, firstly that no one who was not a party to a contract could bring an action on a contract, secondly, that a person who has no interest in the subject-matter of an insurance can claim the benefit of insurance. Thus this provision puts beyond doubt removing these two objections and making an exception to the general law of contract. Now the question is whether such rights secured to the third party by insuring the vehicle can be defeated by transferring the vehicle during the period when the policy is in force. It is significant to note that Section 95 requires the insurance of the vehicle. Once the vehicle is covered by the insurance not only the owner but any person can use the vehicle with his permission. Section 94 does not require that every person that uses the vehicle shall insure in respect of their separate use. The decided cases now held that on transfer the policy will lapse and a third party cannot enforce the policy against the insurance company. We must make it clear that there are two third parties when such transfer took place One is a transferee who is a third party to the contract and the other for whose risk the vehicle is insured. We have no hesitation to hold that the transferee who is a third party to the contract cannot secure any personal benefit under the policy unless there is a notation i.e. the insurance company, the transferor of the vehicle, and the transferee must agree that the policy must be assigned to the transferee so that the benefit derivable, or derived under the policy by the original owner of the vehicle, the policy holder can be secured by the transferee. Thus, it is clear under a composite policy, covering the risk of property, person, third party risks, the transferee cannot enforce the policy without the assignment in his favour so far the policy covers the risk of the person and property. He has no remedy against the Insurance company.
41. Once the title is passed to transferee, the transferor ceases to be the owner and consequential his insurable interest in the vehicle also ceases. Hence the decided cases laid emphasis on the point that the moment transfer took place, the insurable interest of the owner, the policy holder ceases and the policy lapses. Then the question is what is insurable interest Fench, J., in Stockdah v. Dunlop (1840) 6 M and W 224, has observed thus:
If there be a right in or against the property which some Court will enforce...a right so closely connected with and so much dependent for value upon the continued existence of it alone, as that a loss of the property will cause pecuniary damage to the holder of the right against it, he has an insurable interest.
42. A still more comprehensive definition given by Lawrence, J. noted by the Editors of the Fourth Edition of Halsbury's Law of England, at para 190 reads as follows:
A man is interested in a thing to whom advantage may arise or prejudice happen from the circumstances which may attend it.and whom it importeth that its condition as to safety or other quality should continue. Interest does not necessarily imply a right to the whole or part of the thing, nor necessarily and exclusively that which may be the subject of privation, but having some relation to, or concern in, the subject of the insurance ; which relation or concern, by the happening of the perils insured against, may be so affected as to produce a damage, detriment or prejudice to the person insuring. And where a man is so circumstanced with respect to matters exposed to certain risks and dangers as to have a moral certainty of advantage or benefit but for those risks and dangers, he may be said to be interested in the safety of the thing. To be interested in the preservation of a thing is to be so circumstanced with respect to it as to have benefit from its existence, prejudice from destruction. Lucena v. Craufurd (1806) 2 Bos and PNR 262 at 302, House of Lords
43. This definition generally takes into account interest in the property. Macgillivray on Insurance Law observes very rightly:
In considering the question of insurable interest it is necessary at the outset of the inquiry to distinguish between the ink rest which the law requires the assured to have in the subject matter of insurance and the interest which is required by the terms of the particular contract under consideration.
It is also observed by the learned author that it is the duty of the Court to lean in favour of insurable interest if possible. In the present case the insurable interest so far the third party risk is concerned, is not the proprietary interest in the vehicle that is required. It is a public liability imposed by the Statute on person using the vehicle in a public place. Hence, it is clear that the basis of this public liability insurance is the user of the vehicle either by the owner or by any other person and hence the proprietary interest in the vehicle is not decissive. In fact the courts have ruled that the vendor can retain insurable interest, even if he undertakes to the purchaser to be responsible for the safety in the subject matter. Vide Martmeau v. Ritching (1872) 7 QB 436 Para 647 Halsbury's Laws of England, Fourth Edition. Section 94 enjoins on the person not to cause or allow any other person to use the vehicle in a public place without the necessary insurance to the vehicle. It is indisputable that in case where a lessee or a licensee or any other person who uses the vehicle with the permission of the owner, are covered by the protection under the policy. The present Section 94 is analogous to Section 35 of the Road Traffic Act, 1930 and the successive Acts in England that embody this provision are the Road Traffic Act, 1960 and the Road Traffic Act, 1972. It may be useful to extract Section 143 of Road Traffic Act, 1972.
44. Section 143:
(1) Subject to the provisions of this part of this Act, it shall not be lawful for a person to use, or to cause or permit any other person to use, a motor vehicle on a road unless there is in force in relation to the use of the vehicle by that person or that other person, as the case may be, such a policy of insurance or such a security in respect of third-party risks as complies with the requirements of this part of this Act: and if a person acts in contravention of this section he shall be guilty of an offence.
(2) A person charged with using a motor vehicle in contravention of this section shall not be convicted it he proves that the vehicle did not belong to him and was not in his possession under a contract of hiring or of Joan, that he was using the vehicle in the course of his employment and that he neither knew nor had reason to believe that there was not in force in relation to the vehicle such a policy of insurance or security as is mentioned in Sub-section (1) above.
(3) This part of this Act shall not apply to invalid carriages.
45. A perusal of the said provision indicates that the liability of the owner extends not only when he himself uses the vehicle or when he causes or permits any other person to use the vehicle. Section 94 of the present Act uses the expression 'cause or allow any other person to use motor vehicle.' The words 'cause or permit' are the subject-matter of judicial interpretation in England. As observed by Lord Goddard in Shave v. Rosner (1954) 2 All ER 280 : 'I think that, when one finds those two expressions 'causes or permits' in contrast or juxtaposition, 'permit' means giving leave and licence to somebody to use the vehicle, and 'causes' involves a person, who has authority to do so, ordering or directing another person to use it. If I allow a friend of mine to use my motor car, I am permitting him to use it. If I tell my chauffeur to bring my car round and drive me to the Courts, I am causing the car to be used.' It is significant to note that the present Section 94 uses the expression 'allow instead of permit.' The expression 'permit' indicates volition on the part of the owner. But the word 'allow' may indicate voluntary or involuntary action. If a person enables another poison to run the vehicle it is the case of allowing the third party to run the vehicle unless it is a case of theft or unauthorised removal of the vehicle from the custody of the owner.
46. This provision imposes not only criminal liability but also civil liability. The authority on this question is Monk v. Warbey 1934 All ER (Reprint) 373 which laid down that the provision imposes not only criminal liability but also civil liability to the person injured by an uninsured vehicle. A Division Bench of the Madras High Court in Kesavamurthy v. Amirthammal (1977) 1 Mad LJ 464 examined this question and held that Section 94 imposes both criminal and civil liability on the part of I he owner of the vehicle. In that case the owner leased the car to a person and the lessee in his turn hired the car to another person. When an accident took place when the vehicle was run by the hirer the question arose whether the owner and the Insurance Company are also liable besides the lessee and the hirer. Reversing the view of the Tribunal the High Court held that the owner and the Insurance Company are also liable. While examining this question they proceeded on the assumption that because of the transfer of vehicle to the lessee there is no valid policy of insurance in force ; nonetheless their Lordships held that the liability of the owner under Section 94 permitting the lessee to use the vehicle makes him civilly liable and the damages awarded are liable to be paid by the owner and consequently by the insurance company also.
47. It is incorrect to assume that the moment the title of the vehicle passes to the transferee the statutory obligation under Section 94 ceases and the original owner is no longer guilty of causing or allowing the purchaser to use the vehicle. The question is when does the statutory liability cease The mere passing of title in the vehicle to the transferee will not put an end to this liability. For this purpose we must examine two more provisions of the Act. under Section 31 the transferor shall within 14 days of the transfer re-port the fact of transfer to the registering authority within whose jurisdiction the transfer is to be effected and shall simultaneously send a copy of the said report to the transferee and within forty five days of the transfer forward to the registering authority no objection certificate obtained by him under Section 29-A. Section 29-A contemplates issuing of no objection certificate both on the occasion of assignment of a new registration mark and also while transferring the motor vehicle. The registering authority is enjoined to issue a certificate within a period of thirty days and if no orders are passed the registering authority shall be deemed to have granted the no objection certificate. The failure to comply with Section 31 is made punishable under Section 112. However, as an alternative measure it also provided under Section 31(1-A) that if the transferor or transferee fails to comply with the requirements of Section 31 they have to pay a fine of Rs. 100/- or the prescribed amount considering the period of delay on their part by way of penalty. It is pertinent to note that Section 31 was amended by Act 100 of 1956. under Section 31 as it stood prior to this amendment in 1956 only the transferee was required to report the transfer of the ownership and was expected to forward a certificate of registration to the registering authorities within thirty days of the transfer. Prior to this amendment there was no statutory obligation on the transferor as is now provided in Sub-clause (a) of Sub-section (1) of Section 31 to notify the transfer to the registering authority within whose jurisdiction the transfer is effected. Thus we see till the transferor fulfils the statutory obligation under Section 31 his liability continues. Further he is the ostensible owner of the vehicle so long the registration is not changed. The liability to pay tax continues irrespective of his rights against the transferee for re-imbursement. In fact it was ruled in Northern India General Insurance Company Ltd. v. Kanwarjit Singh : AIR1973All357 that a registered owner would have sufficient interest to effect insurance because he is the ostensible owner. The question raised in that case was whether the registration in favour of benamidar, is valid when the registered owner of the vehicle is only benamidar when the real owner never obtained the insurance. It was held that the registered owner has sufficient interest to effect insurance because be is the ostensible owner and there is nothing in Section 94 which could be interpreted to mean that it is only the real owner who could effect the insurance. Any person who uses the vehicles or allows any other person to use the vehicle could also get the insurance effected. Thus, it is seen the public liability to notify the transfer and secures no objection certificate under Section 31 read with Section 94, would make the original owner retain the insurable interest. The insurable interest in this case is not the proprietary interest but the public liability, not to run the vehicle or cause or allow any person to run the vehicle without insurance and also to notify the transfer of such vehicle to the registering authority. So long such obligation continues notwithstanding the cession of proprietary interest, the insurable interest which is the foundation for the continuance of the operation of the policy stands.
48. In this context it is necessary to refer three English decisions relied upon by the decided cases and examine the applicability of the principle laid down in these cases which held that the policy lapses on the transfer of the vehicle.
49. In Rogerson v. Scottish Automobile and General Insurance Co. Ltd 1931 All ER (Reprint) 606 the appellant effected his insurance with the respondent-insurance company upon a motor car which he then owned. He exchanged the insured car for a new car but the new car was not insured When he met with an accident while driving the new car the claim against the insurance company was examined. The insurance policy provides an extension clause in these terms : 'This insurance shall cover the legal liability as aforesaid of the assured in respect of the use by the assured of any motor car is (other than a hired car), provided that such motor car is at the time of the accident being used instead of the insured car.' The contention in the policy not only covers the insured car but also any other car that the owner drives. While examining the operation of the extended coverage Lord Buckmaster held : 'To me this policy depends upon the hypothesis that there is, in fact, an insured car. When once the car which is the subject of this policy is sold, the owner's rights in respect of it ceases and the policy so far as the car is concerned is at an end.' It must be noticed that the accident is not to the insured car but the new car and the contention is that the extended coverage governs the case. In construing the extended clause their Lordships held that in order to invoke the extension clause the owner must be owning the car in respect of which the insurance was made. If he does not possess a car at all he will not have the privilege of driving any other car in substitution of his insured car.
50. This principle is followed in another case by Goddard, J., in Tattersall v. Drysdale 1935 All ER (Reprint) 112 where the clause extending the coverage is similar though not identical. The plaintiff in the case insured his car against third party risk with one insurance company extending the protection not only to his car which was insured but also any other car that may be used by him. He sold the car to a company requiring the company to supply new car. The company till the new car is .delivered to the plaintiff supplied another car which is also under the insurance under a different insurance company. While using the said car he met with an accident. The question arose among the two insurance companies i. e. whether the insurance company with which the plaintiff's car was insured or the insurance company with which the company's car was registered was liable. While examining the liability of the insurance company with which the plaintiff's car was insured it was held by Goddard, J., following Rogers on v. Scottish Automobile and General Insurance Company Ltd. (1931) All ER (Reprint) 606.
It gives the assured by the extension clause a privilege or further protection while using another car temporarily, but it is the scheduled car which is always the subject of the insurance. Though the words differ in the two policies, the effect and intention seem to me to be the same, and express provision is made for what is to happen when the assured parts with the car. To construe this policy otherwise would be to hold in effect that two distinct insurances were granted, one in respect of the scheduled car, and another wholly irrespective of the ownership of any car. It may be that a person who does not own a car can get a policy which would insure him against third party risks whenever he happens to be driving a car belonging to someone else, but the clause, I am considering is expressly stated to be an extension clause, that is, extending the benefits of this policy, and accordingly, if the assured ceases to be interested in the subject-matter of the insurance the extension falls with the rest of the policy.
51. This is also a case where the accident is not to the insured car but to the substituted car. While considering the privilege of using the substituted car the Courts have insisted that the owner must possess the car insured. Again in Peters v. General Accident and Life Assurance Corporation Ltd. (1937) 4 All ER 62H Goddard, J. followed the above two cases and held that when the vendor sold the car the insurance policy automatically lapses. However, these cases were distinguished by Parker, Chief Justice in Boss v. Kingston (1963) 1 All ER 177 and held that in the case of third party risks there is no necessity for the assured to have insurable interest in the vehicle. Two persons Boss and Hansford were prosecuted while driving a motor cycle without coverage of third party risks in respect of that vehicle. So far the insurance policy taken by the Hansford is concerned it covers the risk only if he is a driver but Hansford was riding the vehicle, as a pillion passenger. So far Boss is concerned his policy covered not only while driving his Triumph motor cycle but also while driving a motor cycle not belonging to him. The question arose whether this latter indemnity was in operation on the day when the offence took place notwithstanding that the appellant sold the Triumph motor cycle two weeks earlier. The Justices held that indemnity was no longer in operation and accordingly convicted both the appellants. While affirming the conviction that portion of the conclusion that the policy lapsed in view of the sale was disapproved by Parkar, C.J. in these words which is necessary to extract in full:
The conclusion of the justices was based on the fact that, once the Triumph motor cycle was sold, the appellant Boss had no insurable interest in it. That being so, they were of opinion, following the reasoning in Rogerson v. Scottish Automobile and General Insurance Co. Ltd. 1931 All ER (Reprint) 606 and Tattersall v. Drysdale case (supra), that the whole policy lapsed, including the further cover provided in respect of other cycles not owned by or under hire to the assured. It is to be observed, however, that, in the present case, unlike the cases referred to, the policy is in respect of third party risks only and, accordingly, that there is no necessity for the assured to have any insurable interest in the vehicle. He could in law at any rate, and possibly in practice, be able to get cover against damage caused by his driving of any vehicles whether or not he had any insurable interest in them. Accordingly, as it seems to me, those cases are not, at any rate directly, relevant and the justices' reasoning was wrong.
(Italics supplied)
Thus, we are clearly fortified in our view that the insurable interest in the property is not necessary in the case of public liability insurance. The test is whether the liability under the statute ceased or not notwithstanding the passing of title and hence we respectfully dissent with the view expressed by various High Courts that on the sale of the vehicle the insurable interest ceases and the policy lapses. We agree that any claim of the transferee in respect of his property and his person cannot be enforced against the insurance company. He being a stranger he cannot have any claim against the insurance company. But the third party risk is concerned so long the obligations under the statute are not fulfilled, as contemplated under Section 31 read with Section 94, he continues to have the insurable interest till such obligations are fulfilled.
52. Any prudent purchaser should take steps to get the policy transferred to him under Section 103. The insurer is bound to accept the transfer and can only refuse to consent on specified grounds. It is clearly an impracticable view to take that on passing of property in the vehicle, the policy lapses and the obligation under Section 94 of the Act ceases. In fact as observed by Supreme Court the policy is to the vehicle and hence normally it should run with the vehicle, it is just to expect a reasonable time for the transferor to make the necessary arrangement to notify the transfer under Section 31 and secure the certificate under Section 29 A within the time mentioned in those provisions. If this is not allowed, the moment the vendor receives the money and puts the vehicle in possession of the transferee, the latter is not in a position to use the vehicle in view of Section 94 till a fresh policy is obtained. He cannot take the vehicle to his house passing through any public place. When the transferor is liable to pay penalty under Section 31 and also liable to be prosecuted under Section 112 for not notifying the transfer, we are clearly of the opinion such statutory liability makes him to retain the insurable interest as the liability subsists till he discharges the statutory obligations. We disagree with the view expressed in (1972) 1 APLJ 249.
53. We shall presently examine whether the transferor in these batch of cases has notified the transfer as required under Section 31 and secured no objection certificate or the time prescribed under the section has expired after issuing notice to the registering authority about the transfer. Hence non-compliance of these provisions which is in the nature of a statutory liability makes the insurable interest subsist and so long the said interest subsists the policy will not lapse.
54. The second limb of the argument of the learned Counsel for the insurance company Sri V.R.S. Somayajulu is that as per Condition 4 under General Exceptions appended to the policy the company is not liable under the policy. The said condition runs as follows:
The Company shall not be liable under this Policy in respect of any accident, loss, damage and/or liability caused, sustained or incurred after any variation in or termination of the Insured's interest in the Motor Vehicle.
55. In view of the provisions of Section 95 read with Section 96(2) of the Act this condition in the policy is not binding on the third party for whose benefit the insurance was taken. Under the policy Section II of the conditions cover the liability to third parties. It is not argued that any of the conditions subject to which the liability of the third patties are secured under Section II is violated. It is necessary to extract Section 11 in the policy which states:
1. Subject to the Limits of Liability the Company will indemnify the Insured against all sums including claimant's cost and expenses which the Insured shall become legally liable to pay in respect of:
(i) death of or bodily injury to any person caused by or arising out of the use (including the loading and/or unloading) of the Motor Vehicle.
(ii) damage to property caused by the use (including the loading and/or unloading) of the Motor Vehicle.
We are not concerned with the proviso in the said condition and Clause 3 in Section II may also be noticed:
In terms of and subject to the limitations of the indemnity which is granted by this Section to the Insured the Company will indemnify any Driver who is driving the Motor Vehicle on the Insured's order or with his permission provided that such Driver:
(a) Is not entitled to indemnify under any other policy ;
(b) shall as though he were the Insured observe fulfil and be subject to the terms exceptions and conditions of this Policy in so far as they can apply.
56. In fact Section 96(2)(b) confers such right on the 25. T. company if there is a breach of specified conditions in the policy in respect of enumerated categories thereof, It is not the case of the insurance company that there is any breach of conditions of the policy covered by Section 96(2)(b) of the Act. It is ruled by the Supreme Court in New Asiatic Insurance Company v. Pessumal AIR 1964 SC 1736 that conditions other than those covered by Section 96(2)(b) are not binding on the third parties. The relevant observation reads as follows:
Thus the contract between the insured and the company may not provide for all the liabilities which the company has to undertaker vis-a-vis the third parties, in view of the provisions of the Act. We are of opinion that once 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 reachable 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 pars 3 as one to whom cover of the policy was extended.
(Italics supplied)
Thus, it is clear this condition of termination of interest in the vehicle is not one within the purview of Section 96(2)(b) of the Act and the same is not binding on the third party. Now we may record our conclusion on this point.
57. The registration of the vehicle in the name of the transferee is not necessary to pass title in the vehicle. Payment of price and delivery of the vehicle makes the transaction complete and the title will pass to the purchaser. When the policy of insurance obtained by the original owner of the vehicle is composite one covering the risks for his person, property (vehicle) and the third party claim, on passing of title the transferee cannot enforce his claim in respect of any loss or damage to his person and vehicle unless there is a novation. So far the third party risk is concerned the proprietary interest in the vehicle is not necessary and the public liability continues till the transferor discharges the statutory obligation under Sections 29-A and 31 read with Section 94 of the Act. Till he complies with the requirement of Section 31 of the Act the public liability will not cease and that constitutes the insurable interest to keep the policy alive in respect of the third party risks are concerned. It must be deemed that the transferor allowed the purchaser to use the vehicle in a public place in the said transitional period and accordingly till the compliance of Section 31, the liability of the transferor subsists and the policy is in operation so far it relates to the third party risks. We answer the second question accordingly.
58. The next question is whether the defence of the insurer that the policy has lapsed in view of transfer of vehicle is barred by Section 96(2) of the Act
59. It is unnecessary to set out the lengthy Section 96 enough to note the crucial clauses. The said section was construed by the Supreme Court exhaustively in B.I.G. Insurance Co. v. Irbar Singh, case (supra). It was ruled that the only manner of avoiding the liability provided under Sub-section (2) is through the defences mentioned therein. This position is made clear under Sub-section (6) also. However the Supreme Court adverting to the right of the insurer to defend on behalf of the assured in an action observed. 'The insurer has the right provided he has reserved it by the policy, to defend the action in the name of the assured and if he does so, all defences open to the assured can then be urged by him and there is no other defence that he claims to be entitled to urge. He can thus avoid all hardship, if any, by providing for a right to defend the action in the name of the assured and this he has full liberty to do.' Hence there must be a specific provision in the policy to defend the action on behalf of the assured reserving the right to raise all defences that can be raised by the assured. We have examined the conditions of the policy in this case. We do not find any clause coming within the purview of the dicta mentioned above.
60. Further it is necessary to notice Section 110-G is amended by inserting Sub-section (2-A) by the Amending Act 56 of 1969. By virtue of the said provision the Claims Tribunal can permit the insurance company to contest the claim on all or any of the grounds that are available to a person against whom the claim has been made if the Tribunal is satisfied that there is collusion between the persons making the claim and the person against whom the claim is made or the person against whom the claim is made has failed to contest the claim. In view of this amendment we are of the opinion the dicta of the Supreme Court in B.I.G. Insurance Co. v. Irbal Singh holding (Sic) that it is permissible to enlarge further the grounds of defences.
61. Several cases were cited at the Bar on this question. So far this Court is concerned again we notice conflict on this question. A Division Bench consisting of Gopal Rao Ekbote and Ramachandra Rao, JJ. H.I. Insurance Co Ltd. v. P. Ankaiah case (supra) held that the insurance company can raise the plea that the compensation demanded by the claimant is unjust and that the compensation awarded by the Tribunal is excessive. This view is dissented by another Division Bench in R. Chinna Rao v. Reddi Lorudu, case (supra). Further there is also a conflict of opinion on the question whether the insurance company can raise the question that awarding of compensation is in excess of the statutory limit P.A. Choudary, J., took the view it cannot United Fire and General Insurance Co. Ltd. v. P. Parvathamma AIR 1981 Andhra Pradesh 227 while Ramachandra Raju J., held, it can New India Assurance Co. Ltd. v. M. Ramanamma (1982) 1 APLJ (HC) 124.
62. In view of the pronouncements of the Supreme Court referred above It is clear that the insurance company cannot raise any defence not contemplated under Section 96(2). The enumerated defences are relating to the merits of the case. So all defences touching the merits of the claim are restricted to those enumerated under Section 96(2). This is again emphasised by Sub-section (6) by stating that it cannot escape the liability except by way of raising a defence under Sub-section (2) or Sub-section (2-A) in respect of foreign judgments.
63. It is significant to note that the insurance company cannot be made liable at' all but for the statutory provisions under Section 96 limited right is created in favour of third parties and by virtue of the very provision alone the insurance company can be made liable. We are of the opinion that the questions collateral to the merits such as contemplated by Section 4-1 of the Evidence Act that the court has no jurisdiction or the judgment was obtained by fraud and collusion can always be raised and the restriction under Section 96(2) relates to the merits of the case.
64. Further the Statute may impose certain restrictions on the powers of the Tribunal and they operate as inbuilt limitations on the ran of the Tribunal and such provisions cannot be transgressed by the Tribunal irrespective of the defences that ma> be raised or may not be raised by the insurer
65. Hence it is urged very rightly that if the original policy itself was not issued by the company or it was a forged one such defences are not barred under Section 96(2) of the Act. Similarly defence relating to awarding compensation beyond the statutory limit. We say there are certain limitations on the powers of the court, though they may appear to be defences en merits, they are virtually limitations on the powers of the court. The liability under Section 96 arises only if a judgment is obtained or sought against the insured. The fact that the policy is issued by the respondent company must be implicit in the proceedings before the Claims Tribunal In other words it is a fact to be proved by the applicant or the plaintiff as the case may be. He must allege and prove that a particular company the proposed defendant or the respondent company issued policy and such requirement of law whether raised by the insurance company or not must be proved by the claimant. Hence the factual issuance of the policy and its legal validity of issuance are always presupposed being the very basis of the claim and the court must be satisfied about those questions before passing an award against any insurer. They are virtually collateral to the main enquire as without such legal basis no enquiry on merits can be made.
66. We agree that the claim relating to compensation is undoubtedly one touching the merits of the case and barred under Section 96(2). We have closely examined the reasoning of the Division Bench in H.I. Insurance Co. Ltd. case (supra) on this question. The learned Judge who delivered the judgment on behalf of the Bench virtually nullified the true effect of Sub-section (2) of Section 96. His view that the quantum of compensation can be agitated by the insurance company cannot be accepted. We respectfully disagree with the said view. However when the limits on compensation are imposed by the statute they constitute the limitation on the powers of the Tribunal and the Tribunal has no power to award compensation in excess of such limit. We must say that we are not concerned with such problem before us in these appeals and we refrain from expressing any final opinion on that point.
67. So far the present question of plea of lapse of policy is concerned we hold that it is clearly one touching the merits of the case and barred under Section 96(2) of the Act.
68. In C.M.A. No. 562 of 1976 Indian Mutual Insurance Co. v. V. Ramulu 1977 Andhra LT (SN) 176 a similar question was raised before Madhava Reddy, J., (as he then was). The learned Judge having held on facts that there is no transfer of vehicle on the date of the accident and consequently the Insurance Company cannot escape the liability alternatively considered the question whether such plea can be raised by the Insurance Company and held 'In a case where the plea is that the insured himself was not liable for the reason that he had transferred the vehicle by the date of the accident, the restrictions contained in Sub-section (2) of Section 96 as regards the defence open to an insurer cannot apply.' We respectfully dissent with this view as such plea is clearly one touching the merits of the claim and is clearly prohibited under Sub-section (2). Once the policy was issued validly and is in operation any subsequent rights in the policy and the claims arising thereto would clearly partake the character of merits of the claim and they are barred under Sub-section (2) of Section 96. However we must hold that if for any reason the liability of the insured is excluded the insurer also is not liable as Section 96(2) posits that the insurer should satisfy the judgment obtained against the insured in respect of the policy taken by him. If the court holds that the liability of the insured ceases and is not liable for the compensation it follows that the liability under Sub-section (2) in respect of that policy would not arise against the insurer though the insurer is precluded to raise the defence that the policy has lapsed by virtue of transfer. Let us apply these principles laid down by us to the facts of these cases.
69. In C.M.A. No. 302 of 1976 the appellant is the 7th respondent in the original O.P. He is the purchaser of the lorry A.D.T. 263 from the 1st respondent in the O.P. as per the agreement dated 14-3-1973 and the accident took place on 11-10-1973 resulting in the death of the husband of the 1st petitioner and the father of other petitioners. In this appeal the finding regarding negligence of the driver and the compensation awarded by the court below is not challenged but what was urged is that exonerating the Insurance company the 8th respondent (in the O.P.) is illegal. The court below held that in view of the transfer of the vehicle to the appellant, the 8th respondent (in the O.P.) the insurance company is absolved from the liability and made the purchaser alone liable for compensation which was awarded at Rs. 32,000/-, Hence the sole question for determination is whether this transfer has the effect of absolving the 1st respondent the original owner and consequently the 8th respondent, the insurer. Ex. B-l the sale agreement recites that the vehicle was sold for Rs. 85,000/- on 14-3-1973 and Rs. 60,000/- was received on that day and the balance of Rs. 25,000/- must be paid on 29-3-1972 and the rights of the ownership and complete control and possession of the said vehicle has been transferred by the seller in favour of the purchaser on 29-3-1973 subject to the following conditions:
1. That the seller is fully responsible for all kinds of dues like taxes, compounding fees, and penalties etc., till 14-3-1973. He shall pay all such dues if arisen at any time.
2. That the seller is responsible for any court cases, police cases or any accident etc, till 14-3-1973.
3. The seller is responsible for income tax up to 14-3-1973 and thereafter the purchaser shall pay the same.
4. That the said vehicle will remain registered in the name of the seller till the transfer of permit effected in the Secretary, State Transport Authority. Hyderabad. Thereafter immediately the purchaser shall get the vehicle transferred in his name. Till such time the seller shall appear before the concerned authorities in the capacity of owner if need be.
5. The seller has sold the said lorry along with the composite permit.
70. Thus it is seen as per Clause 4 in the said agreement the 1st respondent shall continue to be the ostensible owner for all purposes until the vehicle was transferred in the name of the purchaser and the seller shall appear before the authorities in the capacity of owner. The court below held that the title has passed to the purchaser on construct on of this agreement. It is also necessary to advert to the evidence of the vendor who was examined as R.W. 1. He admitted in his cross-examination that he did not intimate the sale of the vehicle to the insurance company. He also stated 'We have not so far intimated the sale of the vehicle to the insurance company.' It is admitted that the transfer of registration of the vehicle was effected in favour of the 7th respondent on 14-11-1973. Thus it is clear he failed to intimate the transfer to the registering authorities as required under Section 31 of the Act. It is significant to note that in the counter he asserted that it is the liability of the transferee to intimate the transfer to the registering authority and the transferor cannot be blamed for the default of the transferee But we have already noticed as per the Amending Act 100 of 1956 transferor also is under an obligation to notify transfer. Thus it is clear that till the transferor complies with Section 31 of the Act the statutory liability under Section 94 continues Hence notwithstanding the transfer of title in the vehicle his public liability will not cease and that constitutes the insurable interest and consequently the policy continues to be operative and he is liable to the third parties who are injured and consequently the Insurance Company also is liable. Further we have already held that the conditions in the respective policies in these appeals which are identical absolving the company on termination of insured interest in the vehicle will not bind the third parties as it is outside the purview of Section 96(2)(b) of the Act. On these findings we hold that the Insurance Company is liable to pay the compensation and accordingly we reverse the judgment under appeal and direct that there shall be a decree for compensation against respondents 1 and 8 in O.P. No. 72 of 1974 who are R 10 and R 14 respectively in this appeal. No costs.
71. In C.M.A. No. 74 of 1976 also the finding regarding negligence and the compensation awarded is not challenged. In this case the accident took place on 10-4-1972 resulting in the death of one Raju and the claimant was his mother. The 2nd respondent (in the O.P.) is the owner of the lorry A.P.T. 7600. According to him he sold the vehicle on 26-3-1972 to the 5th respondent (in the O.P.). But the 5th respondent contended that the vehicle was sold on 26-8-1972. It is also contended that Ex, B-1 receipt showing the delivery of vehicle was a forged document. The court below held that Ex. B-1 is true and the transfer took place on 26-3-1972 and in view of the fact the accident took place on 10-4-1972 the transferor is not liable. However it made the Insurance Company liable following the judgment in AIR 1976 Andhra Pradesh 171 holding that the policy has not lapsed notwithstanding the transfer and hence the Insurance Company, the 4th respondent in the O.P. filed this appeal. It is difficult to hold that the evidence is clearly in favour of the contention of the original owner that he sold the lorry on 26-3-1972 but not on 26-8-1972. However accepting the finding of the court below that it was sold on 26-3-1972 I am of the opinion that the 2nd respondent has not complied with Section 31 of the Act in notifying the transfer to the registering authority. In the chief-examination he deposed 'I signed the necessary forms for the transfer of the lorry to R5 and gave the completed forms to R 5 on the same day.' The controversy is that Ex. B-1 is a forged one and the transfer took place on 26-8-1972 but not on 26-3-1974 as borne out by Exs. B-1 and B-10. Ex. B-10 is intimation to the registering authority addressed by the 2nd respondent stating that he sold the vehicle to the 5th respondent. In the cross-examination also he asserted that he banded over the letter Ex. B-10 the 5th respondent but did not send it to the registering authority. The relevant statement in the evidence runs thus, 'it is not true that 1 did not hand over Ex. B-10 to R 5 on 26-3-1972 and that myself presented in the office of R.T.A. on 19-9-1972. It is also false that Ex. B-10 was written by me on 26-8-1972 not on 26-3-1972. I have not put the date below my signature in Ex. B-10. I did not inform the R.T.A. about my delivering the letter of transfer to R 5 nor did I inform the insurance company that I sold the vehicle to R 5 and also delivered the vehicle and had given a transfer letter to R 5 on 26-3-1972 itself.' Thus it is clear that he has not intimated the transfer to the registering authority as required under Section 31 and the statutory liability is not discharged and consequently the public liability under Section 94 continues and that constitutes the insurable interest to make the policy operative notwithstanding the transfer of title to the 5th respondent. Once the insurable interest subsists the insured is liable and consequently the Insurance Company also is liable. Hence we confirm the judgment of the court below upholding the liability of the Insurance Company though on a different reasoning. There shall be a decree against the insured, the 2nd respondent (in the O.P) also, who is the 3rd respondent in this appeal. Thus the appeal falls and is dismissed. No costs.