2003 (2) TMI 497 - SC - Indian Laws

Summary

Issues Involved:
1. Liability of the Insurance Company when the driver's license is alleged to be fake.
2. Legal precedents and statutory provisions regarding the defenses available to Insurance Companies u/s 96(2) of the Motor Vehicles Act, 1939 and u/s 149 of the Motor Vehicles Act, 1988.
3. Interpretation of "breach" in the context of insurance policies and the liability of the insurer.
4. The duty of insurers to satisfy judgments and awards against persons insured in respect of third-party risk.

Summary:

1. Liability of the Insurance Company when the driver's license is alleged to be fake:
The Insurance Company sought to avoid liability on the ground that the driver's license was fake. However, the Supreme Court noted that the Appellants failed to prove that the license was fake. The Motor Accident Claims Tribunal and the High Court both held that even if the license was fake, the Insurance Company was liable to pay the compensation as they failed to prove that the insured had deliberately committed any breach of any condition.

2. Legal precedents and statutory provisions regarding the defenses available to Insurance Companies u/s 96(2) of the Motor Vehicles Act, 1939 and u/s 149 of the Motor Vehicles Act, 1988:
The Supreme Court reiterated the settled law that an Insurance Company can only defend on grounds enumerated in Section 96(2) of the Motor Vehicles Act, 1939, and Section 149 of the Motor Vehicles Act, 1988. The Court referred to the cases of British India General Insurance Co. Ltd. v. Captain Itbar Singh, Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan, and Sohan Lal Passi v. P. Sesh Reddy, which established that the insurer must pay to third parties and can only recover from the insured if there was a deliberate breach by the insured.

3. Interpretation of "breach" in the context of insurance policies and the liability of the insurer:
The Court emphasized that the term "breach" implies a willful infringement or violation by the insured. It was held that the insurer must establish that the insured was guilty of a deliberate breach. If the insured had taken all necessary precautions, such as hiring a licensed driver, the insurer could not avoid liability even if the license turned out to be fake.

4. The duty of insurers to satisfy judgments and awards against persons insured in respect of third-party risk:
The Court clarified that u/s 149 of the Motor Vehicles Act, 1988, the insurer must pay to the third party even if the policy is void or canceled, subject to the provisions of the section. The insurer can only avoid liability on the grounds specified in Section 149(2). The Court held that the insurer remains liable to the third party but may recover from the insured if it proves that the insured was aware of the fake license and still permitted the person to drive.

Conclusion:
The Supreme Court dismissed the appeal with costs, reiterating that the Insurance Company must pay the compensation to the third party and can only recover from the insured if there was a deliberate breach by the insured. The amount deposited was allowed to be withdrawn by the claimants.