Source: Madhya Pradesh High Court

Why in News?

In a recent ruling in matter of Pradeep Singh Parihar v. Smt. Rubina & Ors. the Madhya Pradesh High Court reaffirmed that insurance companies cannot be held responsible when vehicle owners fail to verify the competence of drivers they employ.

• Upholding a decision by the Motor Accidents Claims Tribunal at Rewa, High Court endorsed the tribunal's ruling based on the 'Pay and Recover' principle.
• This decision stemmed from findings that the driver involved in the incident lacked a valid license at the time, thus holding the insured party accountable under said principle.

What was the Background of Pradeep Singh Parihar v. Smt. Rubina & Ors. ?

• The appellant has filed this appeal under Section 173(1) of the Motor Vehicles Act, 1988 (MV Act).
• Challenging the decision dated 15^th November 2022, rendered in MACC No.629/2018 by the Second Motor Accidents Claims Tribunal (MACT) in Rewa.
• The appellant seeks to overturn the application of the "pay and recover" principle by the Tribunal.
• The tribunal has applied the principle of pay and recovery on the grounds that it was found that the driver of the offended vehicle did not have any valid and effective driving license at the time of the accident while driving the vehicle.
• The driver of the offending vehicle did not have any valid and effective driving license on the date of the accident ie. 24th June 2017.
• The appellant argued that the driver of the offending vehicle had given him a photocopy of his driving license and was not required to verify the same as he was competent to drive the offending vehicle.

What were the Court’s Observations?

• Justice Achal Kumar Paliwal affirmed the decision of the Motor Accidents Claims Tribunal in Rewa. The tribunal had initially determined that the driver of the vehicle in question lacked a valid and effective license at the time of the accident. Consequently, the insured was held accountable under the 'Pay and Recover' principle.
• Court State that the owner of an offending vehicle has nowhere mentioned/deposed in his testimony and has not produced any evidence to establish that before employing Sukhnandan, as the driver of the offending vehicle, he verified the skills of driver Sukhnandan and thereby, he satisfied himself that Sukhnandan is competent to drive the vehicle the court held that the appellant-bus operator was rightly burdened with the liability since the principles laid down in Rishi Pal Singh v. New India Assurance Co. Ltd. & Ors., 2022.
• The court also found that during the deposition of witnesses and examination of documents, it was disclosed that the driver of the vehicle involved in the incident did not possess a valid driver's license on the date of the accident, namely June 24, 2017. It was further revealed that before the driver's employment, the owner purportedly received a photocopy of a driving license valid from November 5, 2015, to November 4, 2018, which was later determined to be counterfeit.
  • The owner contended before the single judge bench that he was not under a legal obligation to authenticate the authenticity of the presented driving license, citing the precedent in Rishi Pal Singh.
  • The High Court observed that the owner or the insured bus operator did not adhere to the requirement before engaging the driver.
• Before dismissing the appeal pursuant to Section 173(1) of the Motor Vehicles Act, 1988, the bench convened in Jabalpur further noted the absence of evidence presented by the owner regarding the appointment date of the respondent driver in the vehicle involved in the incident preceding the accident.

What is the Motor Vehicles Act, 1988?

About:

• Replacing the MV Act, this Act came into force on 1^st July 1989.
• The Act provides in detail the legislative provisions regarding licensing of drivers/conductors, registration of motor vehicles, control of motor vehicles through permits, special provisions relating to state transport undertakings, traffic regulation, insurance, liability, offences and penalties, etc.

Section 149(2) of Motor Vehicles Act 1988:

• The insurer can avoid liability only if it proves that the insured breached policy conditions, such as employing a disqualified or unlicensed driver, due to negligence or lack of reasonable care.
• Insurers must establish both available defenses and the owner's breach of policy conditions, with the burden of proof resting on them.
• The court cannot prescribe a universal method for discharging this burden; it varies case by case.
• Even if the insurer proves a breach regarding the driver's license, liability cannot be avoided unless this breach significantly contributed to the accident.
• The owner's diligence in verifying the authenticity and legality of the driver's license must be assessed individually in each case.
• If the driver held a learner's license at the time of the accident, insurers are liable to fulfill the compensation decree.

What are the Guidelines Issued by the Supreme Court for Pay and Recovery under Motor Accidents?

• National Insurance Company Ltd. v. Swaran Singh and others (2004):
  • The pay and recover principle were addressed in this case which mandates that in cases of third-party risks, the insurer must indemnify the compensation amount payable to the third party.
  • It was established that the burden of proof always lies with the insurance company to demonstrate that the driver lacked a valid driving license and that there was a breach of policy conditions.
  • If it is proven that the driver did not possess a valid license and there was a breach of policy conditions, the "pay and recover" principle can be applied in cases of third-party risks.
  • The Court emphasizing the insurer's obligation to compensate third parties and outlining guidelines for instances where such compensation is sought from the insured due to breaches of policy conditions or disqualifications of the driver.
  • The burden of proof rests on the Insurance Company to demonstrate that the driver lacked a valid license and that there was a breach of policy conditions.
  • If these conditions are met, "pay and recover" can be implemented for third-party risks. The Tribunal must assess whether the owner exercised reasonable care in verifying the legality of the driver's license on a case-by-case basis.
• Shamanna v. Divisional Manager (2018):
  • The Supreme Court has addressed the issue of whether an insurer can avoid liability under Section 149(2) of the MV Act.

What is Section 173 of Motor Vehicles Act, 1988?

• Section 173 deals with appeal.
• Subject to the provisions of sub-section (2), any person aggrieved by an award of a Claims Tribunal may, within ninety days from the date of the award, prefer an appeal to the High Court:
  • Provided that no appeal by the person required to pay any amount in terms of such award shall be entertained by the High Court unless he has deposited twenty-five thousand rupees or fifty percent. of the amount so awarded, whichever is less, in the manner directed by the High Court:
  • Provided further that the High Court may entertain the appeal after the expiry of the said period of ninety days, if it is satisfied that the appellant was prevented by sufficient cause from preferring the appeal in time.
• No appeal shall lie against any award of a Claims Tribunal if the amount in dispute in the appeal is less than one lakh rupees.