The Bombay High Court has clarified that an insurer cannot evade compensation liability in motor accident claims solely on the basis of a driver’s forged licence. The judgment reinforces that the insurer’s defence of policy breach requires proof of the owner’s knowledge and consent to the unauthorized use of the vehicle, not merely the invalidity of the driver’s credentials.
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 second respondent, a claimant, sustained injuries leading to permanent disability. The claim for compensation was filed before the Motor Accident Claims Tribunal. The appellant, SBI General Insurance Company Ltd., contested liability on the ground that the driver held a fake and manipulated driving licence.
Procedural History
- 2016: Motor Accident Claim Application filed before the Tribunal
- 2023: Tribunal awarded Rs. 2,32,000 plus 7.5% interest from the date of filing
- 2025: Appeal filed by insurer challenging the award on grounds of policy breach due to fake licence
- 2026: Appeal heard and dismissed by the Bombay High Court
Relief Sought
The insurer sought to set aside the Tribunal’s award and obtain an order for pay and recover, arguing that the claim should be recovered from the owner or driver due to fraudulent documentation. The respondents sought confirmation of the award and release of the deposited amount with interest.
The Legal Issue
The central question was whether the mere existence of a fake driving licence, proven by RTO records, is sufficient to discharge an insurer from liability under the Motor Vehicles Act, or whether proof of the owner’s knowledge and consent to the driver’s unauthorized use is also required.
Arguments Presented
For the Appellant
Counsel for the insurer relied on Section 147 of the Motor Vehicles Act and Rule 14 of the Motor Vehicles (Third Party Insurance) Rules, 1989, arguing that driving without a valid licence constitutes a breach of policy conditions. She cited the testimony of the RTO witness and the Tribunal’s own finding that the licence was fake as conclusive proof of policy violation, entitling the insurer to a pay-and-recover order.
For the Respondents
Counsel for the claimants contended that the insurer failed to establish that the owner had knowledge of the driver’s invalid licence at the time of permitting him to drive. They emphasized that Section 147 protects third-party victims and that the insurer’s obligation is primary unless the owner is shown to have knowingly facilitated an illegal act.
The Court's Analysis
The Court examined the interplay between Section 147 of the Motor Vehicles Act and the insurer’s right to recover payments. It noted that while the Tribunal correctly recorded that the driving licence was fake, this alone does not extinguish the insurer’s liability. The Court held that the burden lies on the insurer to prove that the owner of the vehicle knowingly permitted an unlicensed person to drive.
"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 Court emphasized that policy exclusions must be strictly construed against the insurer, and mere technical breaches without evidence of owner complicity cannot override the statutory duty to compensate victims. The Tribunal’s finding that there was no proof of willful breach was upheld as legally sound. The Court further clarified that an order of pay and recover cannot be granted absent evidence of the owner’s culpable negligence or intentional violation.
The Verdict
The appeal was dismissed. The Court held that the insurer remains liable to pay compensation to the victim even if the driver’s licence is fake, unless the owner’s knowledge of the falsity is established. The claimants were permitted to withdraw the awarded amount with interest, and the statutory payment was directed to be transmitted to the Tribunal.
What This Means For Similar Cases
Knowledge of Owner Is Essential
- Practitioners must now establish actual knowledge or willful negligence by the vehicle owner to invoke pay-and-recover provisions
- Insurers cannot rely on RTO records alone; they must adduce evidence linking the owner to the driver’s fraudulent conduct
- Claims against insurers will not be defeated by technicalities unless owner culpability is proven
Pay-and-Recover Requires Higher Threshold
- The pay-and-recover mechanism under Section 147 is not automatic upon proof of driver’s invalid licence
- Courts will scrutinize whether the owner acted in breach of policy terms with intent or recklessness
- Claimants’ counsel should focus on the absence of owner knowledge as a decisive defence
Victim Protection Overrides Technical Defences
- The primary purpose of third-party insurance is to ensure compensation to victims
- Courts will not allow insurers to escape liability through procedural loopholes absent clear evidence of owner fraud
- This judgment reinforces the human rights-based approach to motor accident claims under Article 21
