JUDGMENT
G. C. Jain, J.
1. A learned single Judge of this Court, agreeing with the decision of the full Bench of the Andhra Pradesh High Court in Madineni Kondaiah v. Yaseen Fatima, 1986 ACJ 1 (AP), which was in conflict with the Division Bench decision of this Court in Oriental Fire & General Insurance Co. Ltd. v. Vimal Roy, 1972 ACJ 314 (Delhi), has referred the following question of law for decision of the Full Bench.
Whether the third party liability of insurance company comes to an end on transfer of vehicle by the insured to someone else?
2. The facts leading to the reference briefly stated, are these. Mr. A.N. Wadhwa (for short ‘Wadhwa’) was the owner of a two- wheeler scooter registration No. DLO 7451. It was insured with Vanguard Insurance Co. Ltd. (for short ‘the insurance company’) for the period from 27.9.1968 to 26.9.1969. Wadhwa sold the scooter to P.P. Khurana (for short ‘Khurana’) on 27.11.1968 and delivered the possession thereof. Final receipt was to be given after the permission from the Ministry of Rehabilitation where he was employed. Permission was granted on 7.12.1968 and final receipt indicating the sale of scooter with delivery of possession for Rs. 2,200/- was issued on 15.12.1968. The scooter was registered with the Registering Authority in the name of Wadhwa. This continued, even after the sale. In other words, ownership in the name of Khurana was not transferred in the records of the Registering Authority under the Motor Vehicles Act (for short ‘the Act’) till the date of accident. It was so transferred after the accident. In lieu of the certificate of insurance No. 671183 for the period 27.9.1968 to 26.9.1969 in favor of Wadhwa, another certificate No. 710154 for the period 1.3.1969 to 26.9.1969 was issued by the insurance company in favor of Khurana.
3. On 3.1.1969 at about 9.00 a.m. Anand Sarup Sharma (for short ‘Sharma’) the appellant, it is stated, was going towards Nangal Rai from Gopi Nath Bazar on foot when Khurana driving this scooter came from behind and hit him resulting in fracture of shafts of tibia and fibula.
4. On 1.3.1969 Sharma brought a petition under Section 110-A of the Act against Khurana, Wadhwa and the insurance company claiming a sum of Rs. 50,000/- as compensation. The amount was claimed from Wadhwa and the insurance company on ‘ the ground that though Wadhwa had sold the scooter to Khurana he was still a registered owner and was, therefore, liable to pay compensation. Consequently his insurer was liable to satisfy the award.
4-A. The Motor Accidents Claims Tribunal vide its judgment dated 27.10.1975 recorded the following findings:
(1) Sharma was injured as a result of rash and negligent driving of the scooter by Khurana;
(2) Wadhwa had transferred the scooter in question in favor of Khurana before the date of the accident;
(3) Wadhwa had no insurable interest in the scooter on the date of the accident. The insurance company, therefore, was not liable to pay any compensation;
(4) The petition was not bad for want of notice; and
(5) The petitioner, Sharma, was entitled to recover Rs. 3,850/- as compensation.
5. On these findings he awarded a sum of Rs. 3,850/- with costs and future interests if the amount was not paid within two months of the date of the award, against Khurana only. The application against Wadhwa and the insurance company was dismissed.
6. Feeling aggrieved Sharma filed an appeal praying for enhancement of the compensation and for awarding the compensation against all the respondents.
7. At the time of arguments before the learned single Judge, learned Counsel appearing for the appellant, relied on the Full Bench decision of Andhra Pradesh High Court in Kondaiah’s case, 1986 ACJ 1 (AF) where it was held that the insurance company could not raise the defense that the policy had lapsed because of the sale of vehicle and that the insurable interest continued, so far as third party risk was concerned, so long the obligation under statute as stipulated under Section 31 read with Section 94 of the act was not fulfillled. Agreeing with the decision but observing that a contrary view had been taken by the Division Bench of this Court in Vimal Roy’s case, 1872 ACJ 314 (Delhi), which was binding On him sitting singly, the learned single judge referred the above-mentioned question to the Full Bench.
8. The scooter was a movable property. Its sale was undisputedly governed by the Sale of Goods Act. “A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property and goods to the buyer for a price Where under a contract of sale property in the goods is transferred from the seller to the buyer the contract is called a sale.” (Section 4 of the Sale of Goods Act.)
9. it is not disputed that the property in the scooter had passed from Wadhwa (seller) to Khurana (buyer) at least, on 15.12.1968 when the final receipt was executed. The price had been paid. Possession had been delivered before this sale. The sale in all respects was, thus, complete on 15.12.1968 i.e., before the date of accident. The property in the scooter had passed to the buyer.
10. Is there any provision in the Motor Vehicles Act 1939 to postpone the transfer of the property from seller to the buyer, though the transfer is complete under the Sale of Goods Act, till some other event takes place?
11. Section 2 (19) of the Act define? ‘owner’ as under:
‘owner’ means, where the person in possession of a motor vehicle is a minor, the guardian of such minor, and in relation to a motor vehicle which is the subject of a hire-purchase agreement, the person in possession of the vehicle under that agreement.
12. This definition does not include a registered owner in its ambit. It does not indicate at all that a registered owner, would continue to be owner of the vehicle even after he has sold it till it was registered in the name of the transferee.
13. The contention of the learned Counsel for the appellant is that the seller would remain owner till the time the ownership of the scooter was not transferred in the name of the buyer in the records of the registering authority. The seller would cease to be the owner only after the vehicle was registered in buyer’s name. In support of his contention he relied on Sections 22 and 31 of the Act. Section 22 and relevant portion of Section 31 read:
Section 22. Necessity for registration. – (1) No person shall drive any motor vehicle and no owner of a motor vehicle shall cause or permit the vehicle to be driven in any public place or in any other place for the purpose of carrying passengers or goods unless the vehicle is registered in accordance with this Chapter and the certificate of registration of the vehicle has not been suspended or cancelled and the vehicle carries a registration mark displayed in the prescribed manner.
14. Section 31. Transfer of ownership. – (1) Where the ownership of any motor vehicle registered under this Chapter is transferred:
(a) the transferor shall
(i) within fourteen days of the transfer, report the fact of transfer to the registering authority within whose jurisdiction the transfer is to be effected and shall simultaneously send a copy of the said report to the transferee;
(ii) Within forty-five days of the transfer, forward to the registering authority referred to in sub-Clause (i) —
(A) a no objection certificate obtained under Section 29-A; or
(B) in a case where no such certificate has been obtained, -(I) a receipt obtained under Sub-section (2) of Section 29-A; or (11) a postal acknowledgment received by the transferor if he has sent an application in this behalf by registered acknowledgment due to the registering authority referred to in Section 29-A, together with a declaration that he has not received any communication from such authority refusing to grant such certificate or requiring him to comply with any direction subject to which such certificate may be granted.
(b) the transferee shall, within thirty days of the transfer, report, the transfer to the registering authority within whose jurisdiction he resides, and shall forward the certificate of registration to that registering authority together with the prescribed fee and a copy of the report received by him from the transferor in order that particulars of the transfer of ownership may be entered in the certificate of registration.
15. We have carefully examined the above provisions. In our considered opinion these provisions do not have the effect of postponing the transfer of property from seller to the buyer till the transferor and transferee make the requisite report and the vehicle is registered in the name of the transferee. Section 22 simply imposes a statutory obligation. It prohibits the driving of any vehicle by any person unless the vehicle is registered. Non-compliance of these provisions does not have the effect of postponing the transfer of property in the vehicle from seller to buyer. To take a contrary view would result in absurd result. If a buyer after purchase does not use the vehicle he is the owner. But if after one year he uses it he ceases to be the owner. It is not and cannot be the law.
16. Opening words of Section 31 “where the ownership of any motor vehicle registered under the Chapter is transferred” make clear the transfer of ownership has to precede the reports required to be made under Section 31. Section 31 does not prohibit the transfer of a motor vehicle till the reports are made. These provisions only cast an obligation on the transferor and the transferee to report to the Registering Authority concerned regarding the transfer of the vehicle after the transfer has already taken place. These provisions have nothing to do with the ownership of the Vehicle as such. They merely provide for regulations of use of motor vehicles in public places. Their non-compliance attracts penalties.
17. In Vimal Roy’s case 1972 ACJ 314 (Delhi), a Division Bench of this Court held as under:
The penalty for contravention of the provisions of the Act or the Rules made there under is contained in Section 112 and other provisions occurring in Chapter IX of the Act. It is, however, significant that there is in particular no provision of law stating that the registration of a motor vehicle is a condition precedent for any transfer of the vehicle or that in the absence of registration, the sale would be void or ineffective. On the other hand, an analysis of Section 31 of the Act shows that it presupposes a valid and subsisting transfer by the registered owner of the vehicle to another person and the transferor is enjoined upon a duty within 14 days after the transfer to report the transfer to the authority and the transferee is within 30 days required to report the transfer to the authority. The endorsement of the transfer in the records of the registering authority is, therefore, not a condition precedent to the transfer, nor does it deal with the legality or validity of the transfer which must be determined by other provisions of the law. Should any person, in disregard of the provisions of law, fail to intimate the transfer to the authority or drive the vehicle in a public place without a certificate of registration, he runs the risk of incurring the penalties provided by the Act, but his title to the purchase of the vehicle undoubtedly remains unaffected, nor does the title remain in suspense during the grace period allowed for effecting endorsements of registration.
18. On a perusal of the provisions of the Motor Vehicles Act, it cannot be denied that the registration certificate is a very important piece of evidence to show the ownership of the vehicle, particularly as the person making an application is required to produce the vehicle before the authority for inspection and without a registration certificate, a person would normally find it useless to own the vehicle if he cannot drive it in any public place and so, in his own interest, the transferee will take steps to have the particulars of the transfer endorsed on the certificate of registration. However, failure to do so cannot be deemed to militate against the validity and legality of the passing of the title in the vehicle so transferred or to expose the innocent seller who may have done his all to complete the transfer to legal liabilities for acts and omissions in respect of the vehicle subsequent to the transfer. Moreover, the certificate of the registration is not document of title; it is issued to the owner of the vehicle, that is the person by whom the vehicle is kept and used and although provision is made for changes of ownership to be recorded in the book, the name appearing in it may not be of the legal owner of the vehicle; the registration book is evidence of title and its absence at the time of sale should put a purchaser on enquiry….”
19. This decision was followed by a Division Bench of Madhya Pradesh High Court in Balwant Singh v. Jhannubai, 1980 ACJ126 MP. Same view was taken by the Orissa High Court in A.N. Choudhry v. Debahuti Pattnaik, 1979 ACJ455 Orissa. Even the Full Bench of Andhra Pradesh High Court accepted this view in Kondaiah’s case, 1986 ACJ 1 (AP). In any case this question stands settled by the decision of the Supreme Court in Panna Lal v. Chand Mal, 1980 ACJ 233 SC. It was held that Section 31 permits the transfer of ownership but the statute casts an obligation on the transferee to report to the registering authority concerned regarding the transfer. It is thus clear that the transfer of ownership in the records of registering authority is not a condition precedent for sale.
20. What is then the effect of the sale of the motor vehicle before the date of accident on the liability of the insurance company? Does the insurable interest survive even after the sale?
21. A contract of motor insurance is a contract whereby the insurer undertakes to indemnify the insured on the happening of an uncertain event, by the use of the motor vehicle, subject-matter of the insurance, which makes the insured legally liable to pay compensation. Like any other contract it is basically governed by the rules which form part of the general law of contract. It is also formed by the making of an offer by one party and communicating of the acceptance by the other.
22. The insurance policy in this case was issued on 18th March, 1969. Insured was Amarnath Wadhwa. The insure was Vanguard Insurance Co. Ltd. The vehicle, subject-matter of insurance, was a two-wheeler scooter registration No. DLO 7451. The relevant portion of the clause relating to the liability of the third party reads:
Section I -Liability to Third Parties.
1. Subject to the limits of liability the company will indemnify the insured in the event of accident caused by or arising out of the use of the motor cycle against ail sums including claimant’s costs and expenses which the insured shall become legally liable to pay in respect of —
(a) death of or bodily injury to any person but except so far as is necessary to meet the requirements of Section 95 of the Motor Vehicles Act, 1939, the company shall not be liable where such death or injury arises out of and in the course of employment of such person by the insured and excluding liability to any person being conveyed in or on the motor cycle unless such person is being conveyed by reason of or in pursuance of a contract of employment.
(b)…
23. It is clear from this clause that the insurance company undertook to indemnify the insured against all sums which insured became legally liable to pay in respect of death or bodily injury to any person caused by or arising out of the use of scooter in question. In other words the contract between the insurance company and the insured was to indemnify the insured in respect of third party liability. Without any doubt, it was a contract of personal indemnity. There is nothing in the insurance policy to indicate that the insurance company had undertaken to indemnify the person to whom the insured had sold the vehicle prior to the accident. The insurance company could not be compelled to indemnify a person with whom it had no contract and who was rather unknown to it. After the sale the insured was left with no insurable interest in the vehicle. Under the terms of the contract of insurance, therefore, the insurance company was not liable to indemnify the transferee.
24. Has any liability been imposed on the insurance company by the statute, i.e. the Act? Section 94 of the Act, on which reliance has been placed by learned Counsel for the appellant, simply prohibits the use of a motor vehicle by any person, except a passenger, unless it was insured as required in Chapter VIII which deals with insurance of motor vehicle against third party risk. These provisions, in our considered judgment, do not make the ex-owner, who was duly insured or the insurance company with whom the ex-owner was insured, liable. It simply imposes statutory obligation to get the vehicle insured before putting it into use. Non-compliance is punishable under Section 112 of the Act. Non-compliance in any case is by the purchaser and not by the seller. These provisions do not make the insurer of the ex-owner liable to indemnify the purchaser, who had purchased the vehicle from the ex-owner. These provisions do not have the effect of modifying the contract of insurance by adding the buyer of the vehicle as an insured person.
Section 96(1) of the Act reads as under:
Duty of insurers to satisfy judgments against persons insured in respect of third party risks. — (1) If, after a certificate of insurance has been issued under Sub-section (4) of Section 95 in favor of the person by whom a policy has been effected, judgment in respect of any such liability as is required to be covered by a policy under Clause (b) of Sub- section (1) of Section 95 (being a liability covered by the terms of the policy) is obtained against any person insured by the policy, then, notwithstanding that the insurer maybe entitled to avoid or cancel or may have avoided or cancelled the policy, the insurer shall, subject to the provisions of this section, pay to the person entitled to the benefit of the decree any sum not exceeding the sum assured payable there under, as if he were the judgment-debtor, in respect of the liability, together with any amount payable in respect of costs and any sum payable in respect of interest on that sum by virtue of any enactment relating to interest on judgments.
25. Under these provisions the insurance company is liable to pay to the person entitled to the benefit of the decree the sum not exceeding the sum insured under the policy provided (i) a certificate of insurance has been issued in favor of the person by whom the policy has been effected and (ii) judgment in respect of liability covered in the policy has been obtained against the person insured. In short, the statutory liability of the insurance company under Section 96 is only to meet the decree against the insured with whom it has entered into a contract. In other words, the insurance company is liable to meet the decree or award, if the said decree or award is against the person insured by it.
26. A decree or award, in our opinion, can never be made against a person who has sold the vehicle prior to the date of accident. A driver is always liable if the death or bodily injury is caused due to his rash and negligent driving. This is also the rule that an employer, though guilty of no fault of himself, is liable for damage done by a fault or negligence of his servant acting in the course of his employment on the principle that an owner is vicariously liable for the rash and negligent act of his servant. The buyer cannot, by any stretch of arguments, be termed as the servant of the seller. The seller, therefore, cannot be held liable for the tortious act of the purchaser or his servant, committed during the course of his (purchaser’s) employment. The purchaser, in view of the provisions of Section 94 no doubt, is barred by statute from using the vehicle without getting it insured. The consequence of non-compliance of the statutory obligation can lead to two consequences, namely, (i) criminal liability and (ii) tortious liability. However, the seller in no case would be liable either under the tort or under the statute. This non-compliance by the buyer would not make the seller liable for damages. The fact that he continues to be the registered owner would not make any difference so far as his liability to pay compensation under tort or statute is concerned.
27. Similarly Section 103-A of the Act does not impose any liability on the insurer to indemnify the person who has purchased the vehicle from the insured. It simply allows the insured to apply to the insurer for the transfer of the certificate of insurance in favor of the buyer. The insurer shall be deemed to have transferred the certificate in favor of the buyer if it does not inform the buyer and the seller (insured) about its refusal to transfer the certificate of insurance within 15 days of receipt of the application. These conditions must be fulfillled to attract the provisions of Section 103-A of the Act of deemed transfer of the certificate of insurance. .
28. In Rogerson v. Scottish Automobile and General Insurance Co. Ltd., 1931 1 All ER 606 a policy of motor insurance which covered claims against the assured for bodily injury further covered the legal liability of the assured in respect of the use by the assured of a car other than the insured car. The assured claimed indemnity against claims by an injured person by his new car. At the time of accident he had sold the car, subject-matter of the insurance. It was held by the House of Lords that “the policy depended on the hypothesis that there was in fact, an insured car and the assured’s right in respect of the car described in the Schedule to the policy, having ceased when he sold it, the subsequent use of the new car was not covered by the policy”
29. In Peters v. General Accident & Life Assurance Corporation Ltd., 1937, 4 All ER 628; it was held that “when the vendor sold the car, the insurance policy automatically lapsed.”
30. Besides the Division Bench’s decision of this Court in Vimal Roy’s case, 19?2 ACJ 314 (Delhi), Punjab & Haryana High Court in Precto Pipe Company v. National Insurance Company Ltd. 1984 ACJ 218 (H & H) and Labh Singh v. Sunehri Devi, 1988 ACJ 170 (P & H) Calcutta High Court in National Insurance Co. Ltd. v. Labanya Roy 1985 ACJ 720 Calcutta; Orissa High Court in South India Insurance Co. Ltd. v. Puma Chandra Misra, 1973 ACT 46 Orissa; Full Bench of Gujarat High Court in Shantilal Mohanlal v. Aher Bawanji Malde, 1985 ACJ 505 Gujarat; Madhya Pradesh High Court in Balwant Singh v. Jhannubai, 1980 ACJ 126 MP; Madras High Court in Govind Singh v. .S. Kailasam, 1975 ACJ 215 Madras; Mysore High Court in B.P. Venkatappa Setty v. B.N. Lakshmiah, 1973 ACJ 306 Mysore; Bombay High Court in Gulab Bai Damodar Tapse v. Peter K. Sunder, 1975 ACJ 100 Bombay and Rajasthan High Court in Automobile Transport (Rajasthan) Pvt. Ltd. v. Dewalal, 1977 ACJ 150 Rajasthan, had taken the same view.
31. A contrary view was taken by a learned single Judge of the Madhya Pradesh High Court in Mohammad Ramzan v. Sharifanbai, 1982 ACJ 445 MP. But it is clear from the judgment that the earlier decision of the Division Bench of the said High Court was not brought to the notice of the court. A Full Bench of the Andhra Pradesh High Court took contrary view in Kondaiah’s case, 1986 ACJ 1 (AP), as noted earlier. Rajasthan High Court also took contrary view in Santosh Rani v. Sheela Rani, 1988 ACJ 299 Rajasthan and New India Assurance Co. Ltd. v.Avinash, 1988 ACJ 322 Rajasthan and Madhya Pradesh High Court in Sama v. Yusuf, 1988 ACJ 139 MF, took a contrary view. For the reasons recorded above and in view of the decisions of the majority of the High Courts, with respects, we are unable to accept the view taken in these decisions.
32. The policy effected by the insurance company in this case extended to cover also a driver who was driving on the insured’s order or with his permission provided he held a driving license. It was argued by the learned Counsel for the appellant that the buyer was person who was driving the scooter on seller’s order or with his permission and, therefore, the claim against the insurance company was covered under the extended clause. The policy, in our view, insures the insured in respect of the use of a particular vehicle. The extending clause is an additional benefit conferred on the insured. It comes to an end the moment the vehicle is sold. Even otherwise the buyer cannot be held to be using the vehicle on the seller’s order or with his permission. The moment the sale is complete the property in the vehicle is vested in the buyer. The seller was left with no right, title or interest in the vehicle. The vehicle becomes the out and out property of the buyer. The buyer, after the sale is complete, uses, the vehicle by virtue of his own right and not by virtue of any permission of the seller.
33. In Tattersalls, Drysdale, 1935 All ER 112, the policy contained an extension clause. It. covered the insured while he was temporarily using another car. During the continuance of the policy the insured sold the car, the subject- matter of insurance. It was held that the policy indemnified the insured in respect of the ownership and user of the specified car, and when he divested himself of his interest in that car the extension clause ceased to have effect.
34. Lastly, it was argued by learned Counsel for the appellant that the plea, that the insured had sold the vehicle and had no insurable right and consequently the insurance company was not liable to pay the award amount was not available to the insurance company. The insurance company, argued the learned Counsel, could raise defenses provided under Section 96(2) only. This is not one of the defenses and could not be raised.
35. Section 96(2) of the Motor Vehicles Act, no doubt, provides that the insurer shall be entitled to defend the action on the grounds mentioned in Clauses (a) to (c). However if we read the provisions contained in Section 96 as a whole there cannot be any doubt that the insurer means a person who has issued a certificate of insurance in favor of the person against whom the judgment or the award has been made. Section 96 imposes liability on the insurer who has agreed to indemnify the assured. It does not impose liability on any or every insurer. As discussed earlier, no decree or award can be made against the person who has transferred the vehicle before the accident in his capacity as ex-owner or because he continues to be the registered owner. These provisions, therefore, would not be attracted.
36. When asked by us, learned Counsel for the appellant frankly conceded that it was open to the company to raise the plea that it had not issued the certificate of insurance or the policy or that the period for which policy was in force has since lapsed. The reason is obvious. The reason is that these were the basic pleas. Liability of the insurer is founded on the contract of insurance. The contract must be in favor of the person against whom an award or decree has been made. It must be in force on the date of accident. Unless there is a valid contract of insurance making the insurer liable, the question of limiting the right of insurer to the defenses enumerated under Section 96(2) would not arise. To attract the provisions contained in Section 96(2) it will have to be first proved that the insurer against whom the amount is being claimed had insured the person liable under the decree or the award and that the said insurance certificate was subsisting.
37. In British India General Insurance Co. Ltd. v. Capt. Itbar Singh, 1958-65 ACJ 1 SC, it was held that Sub-section (2) of the Section 96 gives the insurer the right to be made a party to the suit and to defend it. Sub-section (2) clearly provides that such an insurer is not entitled to take any defense which is not specified in it. It can raise those defenses which are provided in that section. However, Section 96(2) in our opinion proceeds on the premises that there is a valid subsisting insurance policy. The insurer in our view could raise a defense that the policy comes to an end on the transfer of the vehicle, subject-matter of insurance.
38. For the reasons recorded above our answer to the question referred to the Full Bench is that the change of ownership of a vehicle puts an end to the contract of the insurance policy. The third party liability of the insurance company comes to an end on the transfer of vehicle by the insured to another person.
39. Reference is answered.
