Source: Supreme Court 

Why in News? 

The Supreme Court recently lifted a 2017 mandate requiring a Pollution Under Control (PUC) certificate for third-party vehicle insurance, responding to concerns from the General Insurance Council. The Solicitor General argued that this requirement could leave accident victims without compensation if vehicle owners, who often cannot afford to pay, are held liable directly. 

What was the Background of MC Mehta v. Union of India & Ors. ? 

• The case originates from an application filed by the General Insurance Council regarding a Supreme Court order dated 10th August 2017. 
• The 2017 order mandated 100% compliance in linking annual vehicle insurance with Pollution Under Control (PUC) certificates.  
  • This was based on the Environment Pollution (Prevention & Control) Authority's (EPCA) Report No. 73. 
• The Solicitor General, representing the General Insurance Council, pointed out that due to this directive, 55% of vehicles were not taking third-party insurance. 
  • This was making it difficult for accident claimants to get compensation. 
• The Supreme Court, in its initial hearing, recognized the need to strike a balance between ensuring PUC compliance and maintaining third-party insurance coverage for all vehicles.   

What were the Court’s Observations? 

• The Court prima facie observed that a right balance must be struck between ensuring vehicle compliance with Pollution Under Control (PUC) norms and maintaining mandatory third-party insurance coverage for all vehicles. 
• The Court noted with concern that the implementation of its 2017 order had resulted in approximately 55% of vehicles not obtaining third-party insurance, thereby potentially prejudicing the rights of accident victims to receive compensation. 
• The Court acknowledged that neither the Motor Vehicles Act, 1988, nor any other statutory enactment or rules framed thereunder, mandates insurance companies to require a valid PUC certificate as a prerequisite for vehicle insurance policy renewal. 
• The Court recognized that strict implementation of the 2017 directive could lead to "disastrous consequences," as it may result in a significant number of vehicles plying without third-party insurance coverage. 
• The Court held that the original condition imposed in the 2017 order, while intended to control pollution by ensuring valid PUC certificates, had inadvertently created a situation that could potentially infringe upon the fundamental rights of citizens to seek compensation in case of vehicular accidents. 
• The Court opined that requiring accident victims to seek compensation directly from vehicle owners, who often lack the capacity to pay, would be against the principles of justice and equity. 
• The Court emphasized the need for an effective solution to address the environmental concerns that prompted the original 2017 order, suggesting the utilization of remote sensing technology for tracking vehicles in the Delhi-NCR region. 
• The Court, in its wisdom, deemed it necessary to modify its previous order to rectify the unintended consequences while maintaining the spirit of environmental protection. 
• The Court reiterated the importance of balancing environmental concerns with the public interest in maintaining adequate insurance coverage for all vehicles. 
• The Court directed the learned Amicus Curiae and the learned Solicitor General to propose solutions that would effectively modify the 2017 order while addressing both pollution control and insurance compliance. 

What is PUC? 

• A PUC certificate is an official document certifying a vehicle's emissions comply with prescribed environmental limits. 
• Any authorized police officer in uniform can request a driver to produce a valid PUC certificate. 
• PUC certificates are issued to vehicles that meet the prescribed emission norms after testing. 
• The Motor Vehicles (Amendment) Act, 2019 made PUC certificates mandatory for all motor vehicles. 
• A PUC certificate includes the vehicle's license plate number, emission test results, test date, and expiry date. 
• PUC certification is legally required under the Central Motor Vehicles Rules, 1989. 
• The primary purpose of PUC certification is to control and reduce vehicular pollution. 
• PUC certificates are typically valid for 6 months to 1 year, depending on the vehicle type and age. 
• PUC tests measure levels of pollutants such as carbon monoxide, hydrocarbons, and nitrogen oxides in vehicle exhaust. 
• Only authorized testing centers can conduct PUC tests and issue certificates. 
• Non-compliance with PUC requirements can result in fines imposed by traffic police or transport authorities. 
• The PUC system indirectly encourages proper vehicle maintenance to meet emission standards. 
• Some Indian states have introduced e-PUC certificates to modernize the process and reduce paper use. 
• Regular PUC checks aim to mitigate excessive vehicular contributions to air pollution in urban areas. 

Which Acts Govern PUC Certificate ? 

• The Motor Vehicles Act, 1988: This is the primary legislation that provides the framework for regulating motor vehicles in India. 
• The Central Motor Vehicles Rules, 1989: These rules, formulated under the Motor Vehicles Act, 1988, provide specific regulations regarding PUC certificates. 
• The Motor Vehicles (Amendment) Act, 2019: This amendment strengthened the PUC requirements and increased penalties for non-compliance. 
• Environment Protection Act, 1986: This act empowers the central government to take measures to protect and improve the environment, which includes setting standards for vehicular emissions. 
• And, various state governments have enacted their own rules and regulations to implement and enforce PUC norms within their jurisdictions, working within the framework provided by these central laws. 

What are the Fine for Non-Compliance of PUC? 

• The fines for non-compliance with Pollution Under Control (PUC) certification requirements in India are primarily governed by the Motor Vehicles (Amendment) Act, 2019. Basic fine: The fine for driving a vehicle without a valid PUC certificate is Rs. 10,000. 
• Repeat offense: For subsequent offenses, the fine remains Rs. 10,000. 
• Compounding of offense: In many states, traffic police are authorized to compound this offense on the spot. 
• Additional penalties: In some cases, authorities may also detain the vehicle or suspend/cancel the vehicle's registration certificate. 
• Increased severity: These fines represent a significant increase from the previous penalty of Rs. 1,000 for first-time offenders and Rs. 2,000 for subsequent offenses. 
• Uniform application: The fines are uniform across all states in India, as per the central Motor Vehicles Act. 
• State variations: Some states may have slight variations in implementation or additional local penalties. 

What is Third Party Insurance? 

Statutory Basis and Obligation 

• The Motor Vehicles Act, 1988, mandates compensation for losses suffered by third parties in motor vehicle accidents. 
• Section 32-D of the Insurance Act, 1938, imposes an obligation on insurers regarding third-party risk insurance for motor vehicles. 
• As per Section 146 of The Motor Vehicles (Amendment) Act, 2019, it is incumbent upon vehicle owners to possess valid third-party insurance for any vehicle operated in a public place. 

Definition and Scope 

• Third-party insurance, as defined under the Motor Vehicles Act, is a form of liability insurance wherein an authorized insurer agrees to indemnify the insured against legal liability for injuries or damage caused to a third party. 
• The term "third party," as per Section 145(i) of The Motor Vehicles (Amendment) Act, 2019, encompasses the Government, the driver, and any other co-worker on a transport vehicle. 

Salient Features 

• The policy does not extend coverage to injuries sustained by the insured but rather to those injured by the insured's actions. 
• The beneficiary of the policy is the injured third party, not the policyholder. 
• Premium rates for third-party insurance are not contingent upon the value of the insured property. 

Rights of Third Parties 

• Third parties have the right to receive information about the insured's insurance status. 
• The rights of third parties remain unaffected by any judgment or award against the insured person, unlawful restrictions in the policy, or settlements between the insurer and the insured. 
• In the event of the insured's insolvency, their rights against the insurer under the policy shall be transferred to and vested in the third party to whom liability was incurred. 

Limitations on Insurer's Defenses 

• Insurers are restricted to specific defenses as outlined in the Act, including: 
  • Use of the vehicle for hire and reward without proper permit. 
  • Use of the vehicle for racing or speed testing. 
  • Use of a transport vehicle not allowed by permit. 
  • Operation by a driver without a valid license or disqualified from holding such. 
  • Policy rendered void due to non-disclosure of material facts. 
• Recent Legislative Amendments 
  • Mandatory three-year third-party insurance policies for new cars and five-year policies for new two-wheelers. 
  • Removal of the cap on insurer liability. 
  • Increase in minimum compensation for hit-and-run cases to Rs. 2 lakhs in case of death and Rs. 50,000 for grievous injury. 
  • Simplified claims procedure with a 30-day settlement period for claims up to Rs. 5 lakhs. 
• Constitutional Implications 
  • Insurance companies, falling within the ambit of Article 12 of the Constitution, are considered "State" entities. 
  • As such, they are bound by Article 14 of the Constitution and cannot discriminate or refuse third-party insurance coverage to State-run vehicles. 

Relevant Provisions Related to Third Party Insurance   

• The concept of third-party insurance is under Chapter XI – Insurance of Motor Vehicles Against Third-Party Risks of The Motor Vehicles Act, 1988 between Sections 145 and 164.  
• The new provisions inserted in Chapter XI under the Act of 2019 include:   
  • Sec.149- Settlement by the insurance company and procedure thereof  
  • Sec.159- Information to be given regarding accident   
  • Sec.162- Scheme for golden hour   
  • Sec.164- Payment of compensation in case of death or grievous hurt.  
  • Sec.164(A)- Scheme for interim relief for claimants   
  • Sec.164(B)- Motor vehicles Accident Fund   
  • Sec.164(D)- Power of State Government to make rules   

Case Law  

K. Gopal Krishnan v. Sankara Narayanan (1968):

• The Madras High Court ruled that a scooter owner cannot purchase a third-party risk policy to cover claims from a pillion rider carried without charge. 
• The insurance provider is not liable for injuries to such a pillion rider unless the scooter owner obtains a policy specifically covering those risks. 
• A private carrier registered with the RTO and covered by an insurance policy is prohibited from transporting passengers or goods for hire or compensation. 
• If a private car is used to transport passengers for hire, and an accident occurs, the insurance provider is not responsible for claims from members of the party employing the insured's private car. 

S. Rajaseekaran v. Union of India (UOI) and Ors. (2014):

• The case was initiated by an orthopaedic surgeon seeking more effective legislation to prevent road accidents and improve post-accident care. 
• The petitioner filed a writ petition under Article 32 of the Constitution, seeking the court's intervention in enforcing existing laws and enacting new legislative measures. 
• The court directed the Insurance Regulatory and Development Authority of India (IRDAI) to mandate that general insurers offer only three-year motor third-party insurance policies for new cars. 
• The court also mandated five-year motor third-party insurance policies for new two-wheelers, effective from September 1, 2018. 
• This ruling excludes stand-alone health insurers and specialized insurers from the mandate. 

Govindan v. New India Assurance Co. Ltd.,1999: 

• The Supreme Court that third-party insurance is compulsory under law. 
• The court ruled that the compulsory nature of third-party insurance should not be overridden by any clause in the insurance policy. 
• This decision reinforces the primacy of statutory requirements for third-party insurance over contractual terms in insurance policies. 
• The ruling emphasizes the importance of third-party insurance in protecting the interests of accident victims and ensuring compensation.