The Bombay High Court has clarified a critical principle in motor accident claims: an insurer cannot evade compensation liability solely on the basis of a driver’s forged licence. The judgment reinforces that the burden lies on the insurer to prove the owner’s actual knowledge of the fraudulent documentation, not merely the existence of a fake licence.
Background & Facts
The Dispute
The accident occurred on 1st February 2016 involving a truck registered in the name of the first respondent, Mahendra Rajaram Gautam. The driver, whose identity was not disclosed, was alleged to be operating the vehicle with a forged driving licence. The claimants, injured in the accident, filed a Motor Accident Claim Petition seeking compensation. The insurer, SBI General Insurance Company Ltd., contested liability on the ground that the driver held a fake licence, which allegedly voided the insurance policy under its terms.
Procedural History
- 2016: Claim petition filed before the Motor Accident Claims Tribunal
- 2023: Tribunal awarded Rs. 2,32,000 plus 7.5% interest from the date of filing
- 2025: Appellant insurer filed First Appeal challenging the award on grounds of fraudulent licence
- 2026: Appeal heard and dismissed by the Bombay High Court
Relief Sought
The appellant sought to set aside the Tribunal’s award and invoke the "pay and recover" mechanism under the insurance policy, arguing that the insurer should not bear liability where the driver’s licence was proven fake. The respondents sought confirmation of the award and recovery of the awarded amount with interest.
The Legal Issue
The central question was whether an insurer can be discharged from liability under a motor insurance policy merely because the driver produced a fake driving licence, or whether proof of the owner’s knowledge or consent to the use of a fraudulent licence is a necessary precondition.
Arguments Presented
For the Appellant
Counsel for the insurer relied on Section 147 of the Motor Vehicles Act, 1988, and policy clauses excluding liability for unlicensed drivers. She argued that the RTO witness’s testimony conclusively proved the licence was forged, and that the Tribunal’s failure to discharge the insurer violated the terms of the policy. She cited National Insurance Co. Ltd. v. Laxmi Narain Dhut to assert that fraudulent documentation nullifies coverage.
For the Respondent
Counsel for the claimants contended that the insurer’s obligation under Section 147 is statutory and absolute, subject only to specific exceptions. They emphasized that the insurer failed to establish that the owner had any knowledge of the driver’s fraudulent licence. The claimants relied on United India Insurance Co. Ltd. v. Lehna to argue that the insurer’s liability arises from the operation of the vehicle, not the driver’s personal credentials, unless the owner was complicit.
The Court's Analysis
The Court examined the interplay between statutory liability under the Motor Vehicles Act and contractual exclusions in insurance policies. It acknowledged that while the driving licence was indeed fake and the insurer had adduced evidence to that effect, this alone did not absolve the insurer of liability. The Court emphasized that the insurer’s burden extends beyond proving the driver’s fraud; it must establish that the owner knowingly permitted the vehicle to be driven by someone holding a forged licence.
"It needs to be proved that the owner of the vehicle had knowledge about said fake licence of the driver while entrusting him to drive the vehicle."
The Tribunal had correctly noted in paragraph 14 that no evidence established the owner’s willful breach of policy conditions. The High Court affirmed this finding, holding that mere possession of a fake licence by the driver does not equate to the owner’s culpability or the insurer’s exoneration. The Court further held that the doctrine of pay and recover applies only where the insurer can demonstrate the owner’s active participation in or connivance with the fraud. Absent such proof, the statutory duty to compensate victims under Section 147 remains inviolate.
The Verdict
The appeal was dismissed. The Court upheld the Tribunal’s award of Rs. 2,32,000 plus interest. It held that the insurer remains liable to pay compensation to accident victims even when the driver holds a fake licence, unless the owner’s knowledge of the fraud is proven. The insurer’s recourse, if any, lies in a separate civil action against the owner or driver, not in denying victim compensation.
What This Means For Similar Cases
Owner’s Knowledge Is the Decisive Factor
- Practitioners must now focus on proving or disproving the owner’s actual knowledge of the driver’s fraudulent documents, not just the existence of the fraud
- Insurers cannot rely on automated policy exclusions; they must plead and prove specific intent or connivance by the insured
- Claimants’ advocates should request cross-examination of the owner on whether they verified the driver’s licence before permitting use of the vehicle
Pay and Recover Requires More Than Fraud
- The "pay and recover" mechanism is not triggered by the driver’s misconduct alone
- Insurers must establish willful breach by the policyholder, not merely a third-party’s illegal act
- Courts will scrutinize whether the insurer conducted due diligence at the time of policy issuance or renewal
Statutory Duty to Victims Overrides Contractual Defences
- Section 147 of the Motor Vehicles Act imposes a public policy obligation to compensate victims
- Insurance policy exclusions cannot override this statutory mandate unless the owner’s complicity is proven
- This judgment reinforces the victim-centric approach of motor accident jurisprudence in India
