Decided on March 12,1965

JANAK DULARI Respondents

Referred Judgements :-



S.C.Manchanda, J. - (1.)THIS is an application under Article 227 of the Constitution by the New India Assurance Company, Ltd., (hereinafter referred to as the Insurance Company) against the order of the Additional Civil Judge, Allahabad dated 23rd January, 1963 and the 16th August, 1963, whereby the Insurance Company was not permitted to take up pleas other than those specifically provided for under Section 96 Sub-clause (2) of the Motor Vehicles Act, 1939 (hereinafter referred to as the Act) and the rejection of the subsequent application wherein the Insurance Company had asked for permission to defend the suit in the name of the assured who was not coming forward to contest the suit.
(2.)THE facts lie within a narrow compass and they are these: A motor truck No. U. P. C. 5818 belonging to the assured, Sri Ram Swarup Shukla respondent No. 6, which was being driven by Shamlal the driver, respondent No. 7, was insured with the Insurance Company against third party risk as required under the provisions of the Motor Vehicles Act. On the 30th of March, 1961 while the said vehicle was plying on the public road it met with an accident near the crossing of the Thornhill Road and Lowther Road, Civil Lines, Allahabad as a result of which Sri Babu Ram Saxena the husband of the opposite party No. 1 and opposite parties Nos. 2 to 5 died. THE opposite parties Nos. 1 to 5 had filed a suit against the Insurance Company and the opposite parties Nos. 6 and 7 claimed a sum of Rs. 10,000 by way of damages --eight thousand was on account of the death and Rs. 2000 on account of the shocks suffered by the opposite parties Nos. 1 to 5. THE suit is No. 26 of 1962 and was filed in the Court of the Additional Civil Judge, Allahabad. THE Insurance Company has been arrayeu as a defendant in the said suit in the capacity of an insurer. THE owner of the vehicle opposite party No. 6 has put in appearance but opposite party No. 7 has not done so and neither of them have filed any written statement nor are they contesting the suit. In fact, the owner opposite party No. 6 has more or less admitted the claim of the assured and has made a statement that he does" not want to oppose or contest the proceedings.
The Insurance Company filed a written statement and raised objections on the merit apart from those which were open to it under Section 96 (2) of the Act. An objection was taken by the opposite parties Nos. 1 to 5 against the pleadings of the petitioner under Order 6 Rule 16 read with Section 151 of the Code of Civil Procedure. The Additional Civil Judge after hearing the parties passed the impugned order dated, the 23rd of January 1963, directing that the Insurance Company will not be entitled to raise pleas not specified in Section 96 Sub-clause (2) of the Motor Vehicles Acl and such pleas as were in contravention of Section 96 (2) of the Act will be scored out. Subsequently, on the 23rd of February, 1963 the Additional Civil Judge proceeded to strike off such pleas as did not conform to the provisions of Section 96 (2) of the Act. Thereupon, on 2-2-1963 the petitioner moved another application under Section 151, C. P. C, seeking permission pf the Court to contest the suit in the name and on behalf of the defendants Nos. 1 and 2 (being opposite parties Nos. 6 and 7 in the present petition). The opposite parties Nos. 1 to 5 objected to this application of the petitioner. An application for review was also filed against the order of the Additional Civil Judge dated, the 23rd January, 1.963 by the Insurance Company. These two applications were heard and disposed of by the Additional Civil Judge by his order dated, the 16th August, 1963. These applications were rejected except that the Insurance Company was allowed to raise the plea that it was not liable in respect of the claim of Rs. 2000/- for mental shock, as not being covered by the terms of the insurance policy. The result has been that in substance the entire defence of the Insurance Company has been struck off, and as the opposite parties Nos. 6 and 7 are not contesting the suit a decree against the Insurance Company will automatically follow. This writ petition is directed against the said orders dated, the 23rd of January and 16th August, 1963.

The petition raises an interesting question which has far-reaching consequences on Insurance Companies in general who are saddled with vicarious liabilities in respect of third party risk under Section 96 of the Motor Vehicles Act. The question is whether the defences open under Section 96 (2) when a notice was issued to the insurer under Section 96 (1) are exhaustive and in no circumstances can the insurer he allowed to take pleas on merits, even in a case where the assured and the third party are in collusion or there is a specific term in the insurance policy itself which permits the insurer to take over the defence of the suit from the assured.

(3.)THE second part of the question posed does not require much elaboration in view of the recent decision of the Supreme Court in British India General Insurance Co. Ltd. v. Capt. Itbar Singh, AIR 1959 SC 1331, which were appeals by the Insurance Company from a decision of the Punjab High Court reported in Itbar Singh v. P. S. Gill, (S) AIR 1955 Punj 187. Though the Supreme Court dismissed those appeals, nevertheless, it observed:-- "THE statute has no doubt created a liability in the insurer to the insured person but the statute has also expressly confined the right to avoid that liability to certain grounds specified in it. It is not for us to add to those grounds and, therefore, to the statute for reasons of hardship. We are further more not convinced that the statute causes any hardship. First, insurer has a right provided he has reserved it by the policy to defend the action in the name of the assured and if it is so, all defences open to the assured can then be urged by him and there is no other defence that he claims to be entitled to urge. He can thus avoid all hardship, if any, by providing for a right to defend the action in the name of the assured, and this he has full liberty to do." THErefore, if the insurer has the full liberty, as laid down by the Supreme Court, to protect itself by contract or by inserting a clause in the policy itself that it will have a right to defend the action in the name of the assured then the insurer will not be limited by the defences open to it under Section 96 (2) of the Act but all the defences which could be taken by the assured himself would be open to it. THE Supreme Court, however, made it clear that in such a case the defence to the action will have to be in the name of the assured by the insurer.
In this view of the matter if, in the present case there was such a clause in the policy of insurance it would undoubtedly be open to the insurer to defend the action in the name of the assured. Mr. Jagdish Swarup learned counsel for the petitioner frankly conceded that the aforesaid part of the decision of the Supreme Court was not noticed by him at the time when this petition was drafted. He therefore obtained permission for filing supplementary affidavit asserting that the original insurance policy was in fact filed before the Additional Civil Judge on the 16th May 1963, which contained the following clause:- - ''No admission, offer, promise, payment or indemnity shall be made or given by or on behalf of the insured without the written consent of the company which shall be entitled if it so desires to take over and conduct in the name of the insured a defence or settlement of any claim or to prosecute in the name of the insured for its own benefit any claim for Indemnity or damages or otherwise and shall have full discretion in the conduct of any proceeding or in the settlement of any claim and the insured shall give all such information and assistance as the Company may require."


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