PETITIONER: BRITISH INDIA GENERAL INSURANCE CO., LTD. Vs. RESPONDENT: CAPTAIN ITBAR SINGH AND OTHERS DATE OF JUDGMENT: 11/05/1959 BENCH: ACT: Motor Car lnsurance--Suit for damages by third Party- Insurance company added defendants- Defence if other than statutory available-Interpretation of--Motor Vehicles Act, 1939 (4 of 1939), SS. 95, 96, HEADNOTE: A suit claiming damages, for negligent driving was filed aginst the owner of a motor car, who was insured against third party risks. The insurer, was subsequently added as defendant to the suit under s. 96(2) of the Motor Vehicles Act, 1939. it contended that the defence available to it was not restricted to the grounds enumerated in s. 96(2) Of the Act, but that it was entitled to take all defences including those on which the assured himself could have relied for his defence, subject only to the restriction that it could not in view of S. 96(3) Of the Act rely on the conditions of the policy as a defence. Held, that an insurer made a defendant to the action under S. 96(2) of the Act was not entitled to defend it on a ground not specified in that section. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 413, and
414 of 1958.
Appeals from the order dated April 27, 1955, of the Punjab
High Court in Civil Revisions Nos. 81-D of 1953 and 96-D of
1953 respectively.
1959 April 21, 22, 23, 24.-C. K. Daphtary Solicitor General
for India, Ram Behari Lal, D. K. Kapur and Sardar Bahadur,
for the appellants. The question in the present appeals
turn around S. 96 of the Motor Vehicles Act, 1939. The
purpose of sub-s. (2) of S. 96 is to state those grounds
based on the policy of insurance on which the insurer may
rely for his defence. Sub-section (3) makes certain
conditions of the policy of no effect as against the 3rd
party. Both Sub-ss. (2) and (3) are concerned only with the
conditions of the policy. They should not be interpreted so
as to oust other defences the insurer may wish to take e.g.
that there was no accident or that the plaintiff was
negligent or that there was contributory negligence etc.
When a person is joined as a party he has the right to take
all defences permissible in law.
[Subba Rao, J.-Did the insurer have a right to be joined as
a party, apart from the statute ? Could he be joined under
Order 1, Rule 10, of the Code of Civil Procedure ?]
169
I am not basing my case on Order 1, Rule to of the Code of
Civil Procedure. Apart from the statute, the insurer would
not be liable to the third party, but only to the assured.
[Das, J.-Is it not correct that the statute gives the
insurer a right to be joined as a party which he did not
have previously ? If so, the right cannot be extended beyond
what the statute gives.]
It is true that the statute gives a right to the insurer to
become a party to the action by the injured person which he
did not have previously, but the real question before the
court is whether sub-s. (2) limits the right to defend on
the grounds stated in that sub-section. In my submission,
subS. (2) exhausts only the defences based on the conditions
of the policy which the insurer may wish to take. If it was
intended that these were to be the only defences open to the
insurer the word ” only ” should have been used instead of
the words ” any of ” before the words ” the following
grounds.” What the legislature meant was that the insurer
could defend the action ” also ” on the grounds stated in
sub-s. (2) in addition to other grounds. If the court finds
the section is clear no words can be added. However, I
submit the section is ambiguous. It can mean either that
the insurer can take other defences or that he is limited to
the matters stated in sub-s. (2). The Court should
interpret the: section to give effect to the interests of
justice. The insurer is made liable to satisfy the
judgmental It would be an extreme hardship if he were not
allowed to defend the action on merits. Apart from the
situations coming within sub-s. (2) the insurer would be
condemned unheard. The legislature could not have intended
such a result. Even the cases which hold that the defences
of the insurer are limited to those stated in subS. (2)
recognise that this causes hardship. I.L.R. 1953 Bom. 109,
I.L.R. 955 Bom. 39 and I.L.R. 1955 Bom. 278. In those cases
the hardship was sought to be overcome by allowing the
insurer to defending the name of the insured. I do not say
that this latter procedure is correct, but it shows that
there is hardship.
[Sarkar, J.-How can that be done ? How can the -,insurer be
allowed to defend in the name of the insured? How is the
record to be kept ? There is no provision under which it can
be done, not even under s. 1 5 1 of the Code of Civil
Procedure.]
Probably not. But that question does not arise for deter-
mination in this appeal. The hardship recognised by the
Bombay cases can be avoided if the interpretation of sub-
S. (2) suggested by me is accepted.
22
170
[Das, J.-How is that interpretation possible in the face of
sub-s. (6) ?]
Sub-sectioii (6) only prohibits the insurer from avoiding
liability in a manner other than that stated in sub-s. (2).
The manner of avoiding liability stated in sub-s. (2) is
that the insurer should apply, to be made a party.
Consequently, the insurer can avoid liability, only by being
joined as a party. The word ‘ manner ‘ in the context of
sub-s. (6) refers only to the procedure the insurer may
follow, not to the grounds the insurer may wish to take.
Hence the insurer can avoid liability only by being joined
as a party, but can take any defences, he chooses including
those stated in sub-s.Otherwise the third party and the
assured may collude and a judgment may be passed which the
insurer would be bound to satisfy without having had ‘an
opportunity of defending himself. Or the case may go by
default against the assured or may be compromised. The real
party affected is the insurer and yet he is given no right
to be heard except on the limited grounds stated in sub-s.
(2). The assured is only a nominal party and is not likely
to be interested in contesting the case, as the decree has
to be satisfied by the insurer. The legislature could not
have intended such a result. It is contrary to natural
justice that a party likely to be affected by the
proceedings should not be heard on the merits.
T. P. S. Chawla (with him, Dipak Datta Choudhry) for the
respondent. Chapter VIII of the Motor Vehicles Act, 1939,
is based on various English Statutes (See Report of Motor
Vehicles Insurance Committee 1936-37 known as the Roughton
Committee). For a proper appreciation of s. 96 it is
necessary to consider the historical development of the law
relating to compulsory third party insurance in England.
Before 1930, there, was no system of compulsory insurance in
respect of third party risks in England. In the event of an
accident the injured third party had a right to sue the
motorist and recover damages. But if the motorist was a man
of straw, the injured party was in practice unable to obtain
compensation. This was the situation the various Road
Traffic Acts were designed to avoid.
Even in those cases in which the motorist had taken out an
insurance policy, difficulties arose in the way of the
injured third party recovering compensation. The injured
third party had no direct right of action against the
insurer. In the event of the insolvency of the assured, the
injured third party would rank a,; an ordinary creditor and
would not receive complete satisfaction for his decree. The
Third Parties Rights
171
Against Insurers Act, 1930, created a system of statutory
subrogation in such cases. (Halsbury, 3rd Edn., Vol. 22, PP.
339, 372). The provisions of this Act have been sub-
stantially reproduced in s. 97 of the Motor Vehicles Act.
As a result the third party can sue the insurer directly in
cases.
Next the Road Traffic Act, 1930, introduced a scheme of
compulsory insurance. Section 35(1) made third party insur-
ance Compulsory. Section 94(1) of the Motor Vehicles Act is
worded in the Same Way. Similarly s. 36 Of the English Act
is substantially reproduced in s. 9.5 of the Motor Vehicles
Act. Section 38 of the Act of 1930 made certain conditions
of the policy ineffective so far as third parties were
concerned. The object was that claims of injured third
parties should not fail because the assured had not complied
with or committed a breach of certain conditions in the
policy. (Shawcross on Motor Insurance, 2nd Edn., pp. 219,
277).
But the Act of 1930 did not go far enough. In 1934 another
Road Traffic Act was passed the object of which was to
compel Insurers to satisfy judgments obtained against the
insured (Shawcross ibid P. 271). This Act contemplated
three separate actions between the various parties. The
first action was by the injured third party against the
assured. By s. 10(1) of that Act, which is reproduced in
s. 96(1), the insurer was obliged to satisfy the decree
against the, assured. If the insurer failed to do so, the
third party had a right of action against the insurer, based
on the judgment Obtained against the assured. (Shawcross, p.
296 ; Halsburry 3rd Edn., Vol. 22,PP. 374-5). This was the
second action. It is doubtful if even the defence of
collusion would be open to the insurer in the second action.
(Sliawcross, P. 296). Then S. 10(2) of the Road Traffic Act
of 1934, is substantially reproduced in s. 96(2)(a). By
this provision in certain events the insurers liability
ceases. To appreciate s. 96(2)(b) it is necessary to keep
in mind s. 38 of the Road Traffic Act of 193o and S. 12 of
the Road Traffic Act of 1934. Both these letter sections
made certain conditions of the policy ineffective against
third parties. Whilst drafting the Motor Vehicles Act the
legislature reversed the manner of statement. In s.
96(2)(b) the legislature has stated affirmatively what are
the conditions on which the insurer can rely as against a
third party. This was done to avoid doubt and uncertainly.
Then s. 10(3) of the Road Traffic Act, 1934, gave the
insurer a right to obtain a declaration that he was not
liable on the policy due to non-disclosure or
misrepresentation as to
172
a material fact. In this action a notice had to be sent to
the third party injured who was given a right to join as a
party and oppose the action. This was the third action.
The same result is achieved by s. 96(2)(C). What s. 96 does
is to roll up into one these three actions which occurred in
English Law. This saves time and money and enables the
three parties involved to have their respective rights and
liabilities settled in one action. But s. 96 does not give
any party greater rights than it would have had in English
Law. At common law the insurer had no right to intervene in
the action by the injured party against the insured and
oppose the claim on merits, e.g., that there was no accident
or negligence or that there was contributory negligence etc.
The insurer could avoid liability only by showing that he
was not liable for some reason connected with the -policy.
This is the right which sub-s. (2) preserves. It does not
give additional rights to the insurer over what he would
have had at common law or in accordance with the English
Statutes. On the interpretation suggested by the Solicitor-
General the insurer would get a right he never had before.
This is contrary to the object of Chapter VIII which is to
protect the injured third party and not the insurer. The
insurer is neither a necessary nor a proper party. under
Order 1, Rule 10, Code of Civil Procedure, in the action by
the injured third party against the assured.
[Subba Rao, J.-You need not deal with Order 1, Rule 10, Code
of Civil Procedure, as the Solicitor-General has not relied
on it.]
There is no ambiguity in s. 96(2). The sub-section clearly
specifies the defences open to the insurer and it is not
permissible to add to those defences. This is put beyond
doubt by sub-s. (6). It prevents the insurer from avoiding
liability in a ` manner’ other than that stated in sub-s.
(2). The ‘manner’ provided by sub-s. (2) is by joining as a
party and defending on the grounds stated There’ fore, ‘
manner’ refers to both the procedure and the grounds. To
hold otherwise is to make sub-s. (2) unnecessary. If the
Legislature intended that the insurer should be able to
defend on grounds other than those stated in sub-s. (2) all
it needed to say was that the insurer would be entitled to
join as a party. As sub-s. (2) specifies the defenses the
intention was clearly to limit the insurer to those
defences.
[Subba Rao, J.-Suppose the injured third party and the
insured collude or judgment is allowed to go by default,
could not the insurer have the judgment set aside or bring a
suit to,have it set aside ?]
173
In. my submission even a suit for this purpose is barred as
that would contravene sub-s. (6). Such a suit would enable
the insurer to avoid liability in a.’ manner’ which sub-s.
(6) does not allow.
There is no hardship caused by giving full effect to the
section as it stands. The possibilities of collusion are
remote, and indeed illusory. (Shawcross, P. 296). By- s.
96(3) the insurer is given a right to recover from the
insured any sums paid, by him which he was not bound to pay
due to breaches of conditions in the policy, but which
conditions have been made ineffective as against the third
party. Sub-section (4) of the same section gives the
insurer the right to recover from the assured the excess
which he is made to pay by virtue of s. 95, over his
obligations in the policy. The judgment is still against
the assured who is the party primarily liable. It is only
made executable against the insurer. Apart from this, by s.
1(3) of the Motor Vehicles Act, 1939, the legislature gave
insurers six years to insert provisions in their policies
and take such other steps to protect themselves against the
assured committing them to liability as they thought
fit.Most insurers insert the control of proceedings clause
in the policy (Halsbury, 3rd Edn., VOl. 22 p. 338). Someone
had to bear the loss ultimately, and the legislature has
tried so far as possible to ensure that the loss falls on
the person causing the accident. But, if the insured is
impecunious the choice is between allowing the loss to fall
on the injured party or the insurer. The legislature, in
its wisdom has provided that in such a situation the loss
shall fall on the insurer. It is a part of the insurer’s
business to suffer such losses and when entering the
contract of insurance he contemplates that he might be
called upon to pay the loss.
Now, the Bombay cases referred to by the Solicitor General
are right in so far as they hold that the insurer can defend
only on the grounds stated in sub-s. (2). Those cases are
wrong in proceeding on the assumption that there is hardship
caused to the insurer by this view. They are based on a
misunderstanding of the cases of Windsor v. Chalcraft,
[1939] 1 K.B. 279 and Jacques v. Harrison, 12 Q.B.D. 136,
and on appeal, 12 Q.B.D. 165. It was not noticed in the
Bombay cases that the provisions of Indian Law equivalent to
S. 24(5) of the judicature Act and Order 27, Rule 15,
R.S.C., were not as wide as the English provisions. Order
9, Rule 7, Code of Civil Procedure, allows an ex-parte
decree to be set aside only at the instance of the defendant
whilst there is no such limitation in 0. 27, R. 15, R.S.C.
There, is
174
no procedure known to law by which the insurer can be
allowed to defend in the name of the insured. This cannot
be done under s. 151, C.P.C. as it would contravene s. 96(6)
and allow the insurer to avoid liability in a ‘manner’ other
than the one allowed. The Bombay cases have not noticed
sub-s. (6) at all. The procedure stated in those cases is
untenable.
[Sarkar, J. -Are we called upon to decide that point in this
case ? Apparently there is a revision petition pending in
the High Court between the same parties in which that
question awaits determination. Should we express an opinion
on that point ?]
The Solicitor-General has adopted it as apart of his
reasoning He has said that if the insurer can take all the
defences in the name of the insured, that is an additional
reason why sub-s. (2) should not be interpreted as to limit the
defences available to the insurer. I wants show that view is
wrong. (The Court disallowed this branch of the argument).
In the case reported as Windsor v. Chalcraft [1939] 1 K.B.
279, the dissenting judgment of Slesser, L.J., states the
correct position. The judgment of Greer, L.J., show-, that
lie was in considerable doubt as to the correct position in
law, but felt himself bound by the earlier judgments
reported in jacques v. Harrison, 12 O.B.D. 165. Mckinnon,
L.J., proceeded on the footing that the assured was only a
nominal defendant. As already submitted this is not
correct. Even in English Law the insurer could recover
against the assured. (Halsbury, 3rd Edn,, Vol. 22, PP. 374,
379, 385). The case of Windsor V. Chalcraft was decided in
May 1038. The Motor Vehicles Act was passed in February,
1939. It is legitimate to assume that the persons who
drafted the Act were aware of this case. I submit that the
real purpose of sub-s. (6) was to give effect to the view of
Slesser, L.J.
[Das, J.-That is rather far fetched.]
I submit it is not. Even in England the, view of Slesser,
T..J., seems to have been approved. Subsequent English
cases show that the principle of Windsor v. Chalcraft, is
not to be extended. See Murfin v. Ashbridge [1941] 1 All
E.R.231. It was not necessary to expressly over rule the
case of Windsor v. Chalcraft as in 1946 the Motor Insurers
Bureau was set tip in England, as a result of which an
insurer is bound to satisfy a judgment obtained by a third
party against a, motorist even if the motorist was not
insured (Halsbury, 3rd Edn., Vol. 22, PP. 382 et. seq.,
Shawcross, ibid, Introduction LXXXVII et. seq.) This shows
how strong
175
the attempt to protect the third party has been. Actually
the words of s. 96(2) and (6) are clear to show that the
insurer can take only the defences mentioned in sub-s. (2)
But if there be any doubt, a consideration of the historical
development of the law and the objects to be attained puts
it beyond doubt that the legislature intended this result.
C. K. Daphtari, in reply. It is wrong that at common law
the insurer could not be brought in as a party. At common
law the guarantor or indemnifier could be brought in by
means of third party procedure (see I.L.R. 35 All. 168
and Halsbury, 3rd Edn., Vol. 18, P. 535 and Gray v. Lewis,
L.R. (1873) 8 Ch. 1035, 1058).
Apart from the common law, the insurer could also be joined
as a party under 0. I, R. 10, Code of Civil Procedure.
I rely on the case of United Provinces v. Atiqa Begum,
[1941] A.C. 16. A person should be joined as a party if his
presence is necessary for an effectual and complete
adjudication. On this principle the insurer ought to be
joined as a party, and thus can take all defences.
Chaula, in reply : The passage cited by the Solicitor
General from Halsbury, 3rd Edn., Vol. 18, P. 535, is
actually against him. The foot note (e) shows that at
common law the insurer could not be joined as a party to the
action by the insured. Third party procedure did not exist
at Common Law. Even under third party procedure in England
it is doubtful whether this could be done (Shawcross, pp.
150-151). In any case there is no third party procedure in
Punjab. The cases 35 All. 168 and (1873) L.R. 8 ch. A.
1035 are also against him.
The insurer is neither a necessary nor a proper party as
there can be a complete and effectual adjudication without
his presence. The decree is to be a against the assured,
not against the insurer.
Cur. adv. vult.
1959. May 11. The Judgment of the Court was delivered by
SARKAR J.-These two appeals arise out of two suits and have
been heard together. The suits had been filed against
owners of motor cars for recovery of damages suffered by the
plaintiffs as a result of the negligent driving of the cars.
The owners of the cars were insured against third party
risks and the insurers were subsequently added as defendants
to the suits
176
under the provisions of sub-s. (2) of s. 96 of the Motor
Vehicles Act, 1939. The terms of that subsection will have
to be set out later, but it may now be stated that it
provided that an insurer added as a party to an action under
it was entitled to defend on the grounds enumerated in it.
On being added as defendants, the insurers filed written
statements taking defences other than those mentioned in
that sub-section. The plaintiffs contended that the written
statements should be taken off the records as the insurers
could defend the action only on the grounds mentioned in the
sub-section and on no others. A question thereupon arose in
the suits as to what defences were available to the
insurers. In one of the suits it was held that the insurer
could take only the defences specified in that sub-section
and in the other suit the view taken was that the insurers
were not confined to those defences. Appeals were perferred
from these decisions to the High Court of Punjab. The High
Court held that the insurers could defend the actions only
on the grounds mentioned in the subsection and on no others.
Hence these appeals by the insurers.
The question is whether the defences available to an insurer
added as a party under s. 96(2) are only those mentioned
there. A few of the provisions of the Motor Vehicles Act
have now to be referred to. Section 94 of the Act makes
insurance against third party risk compulsory. Section 95
deals with the requirements of the policies of such
insurance and the limits of the liability to be covered
thereby. Sub-section (1) of this section provides
“………… a policy of insurance must be a policy
which-
(a)…………………………………………….
(b) insures the person or classes of person specified in the
policy to the extent specified in subsection (2) against any
liability which may be incurred by him or them in respect of
the death or bodily injury to any person caused by or
arising out of the use of the vehicle in a public place.”
177
Sub-section (2) of s. 95 specifies the limits of the
liability for which insurance has to be effected, and it is
enough to say that it provides that in respect of private
cars, which the vehicles ‘with which these appeals are
concerned were, the insurance has to be for the entire
amount of the liability incurred. Then comes s. 96 round
which the arguments advanced in this case have turned and
some of its provisions have to be set out.
” Section 96. (1) If, after a certificate of insurance has
been issued under sub-section (4) of section 95 in favour 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 may be 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 thereunder 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.
(2) No sum shall be payable by an insurer under sub-section
(1) in respect of any judgment unless before or after the
commencement of the proceedings in which the judgment is
given the insurer had notice through the Court of the
bringing of the proceedings, or in respect of any judgment
so long as execution is stayed thereon pending an appeal;
and an insurer to whom notice of the bringing of any such
proceeding is so given shall be entitled to be made a party
thereto and to defend the action on any of the following
grounds, namely:-
(a) that the policy was cancelled by mutual consent or by
virtue of any provision contained therein before the
accident giving rise to the liability, and 23
178
that either the certificate of insurance was surrendered to
the insurer or that the person to whom the certificate was
issued has made an affidavit stating that the certificate
has been lost or destroyed, or that either before or not
later than fourteen days after the happening of the accident
the insurer has commenced proceedings for cancellation of
the certificate after compliance with the provisions of sec-
tion 105; or
(b) that there has been a breach of a specified condition
of the policy, being one of the following conditions,
namely:-
(i) a condition excluding the use of the vehicle-
(a) for hire or reward, where the vehicle is on the date of
the contract of insurance a vehicle not covered by a permit
to ply for hire on reward, or
(b) for organised racing and speed testing, or
(c) for a purpose not allowed by the permit under which the
vehicle is used, where the vehicle is a public service
vehicle or a goods vehicle, or
(d) without side-car being attached, where the vehicle in a
motor cycle; or
(ii) a condition excluding driving by a named person or
persons or by any person who is not duly licensed, or by any
person who has been disqualified for holding or obtaining a
driving licence during the period of disqualification; or
(iii) a condition excluding liability for injury caused
or contributed to by conditions of war, civil war, riot or
civil commotion; or,
(e) that the policy is void on the ground that it was
obtained by the non-disclosure of a material fact or by a
representation of fact which was false in some material
particular.
(2A)………………………………..
(3) Where a certificate of insurance has been issued under
sub-section (4) of section 95 to the person by whom a policy
has been effected, so much of the policy as purports to
restrict the insurance of the
179
persons insured thereby by reference to any conditions other
than those in clause (b) of sub-section (2) shall, as
respects such liabilities as are required to be covered by a
policy under clause (b) of sub -section (1) of section 95,
be of no effect:
Provided that any sum paid by the insurer in or towards the
discharge of any liability or any person which is covered by
the policy by virtue only of this sub-section shall be
recoverable by the insurer from that person.
(4) If the amount which an insurer becomes liable under this
section to pay in respect of a liability incurred by a
person insured by a policy exceeds the amount for which the
insurer would apart from the provisions of this section be
liable under the policy in respect of that liability, the
insurer shall be entitled to recover the excess from that
person.
(5)……………………………………………….
(6) No insurer to whom the notice referred to in sub-section
(2) has been given shall be entitled to avoid his liability
to any person entitled to the benefit of any such judgment
as is referred to in subsection (1) otherwise than in the
manner provided for in sub-section (2).”
It may be stated that the policies that were effected in
these cases were in terms of the Act and the certificate of
insurance mentioned in s. 96 had been duly issued. It will
have been noticed that sub-s. (1) of s. 96 makes an insurer
liable on the judgment obtained by the injured person
against the assured. Sub-section (2) provides that no sum
shall be payable by the insurer under sub-s. (1) unless he
has been given notice of the proceedings resulting in that
judgment, and that an insurer who has been given such a
notice shall be entitled to be made a party to the action
and to defend it on the grounds enumerated. The contention
of the appellants is that when an insurer becomes a party to
an action under sub-s. (2), he is entitled to defend it on
all grounds available at law including the grounds on which
the assured himself could have relied for his
180
defence and that the only restriction on the insurer’s right
of defence is that he cannot rely on the conditions of the
policy which sub-s. (3) makes as of no effect. This is the
contention which we have to examine in
these appeals.
To start with it is necessary to remember that apart from
the statute an insurer has no right to be made a party to
the action by the injured person against the insured causing
the injury. Sub-section (2) of S. 96 however gives him the
right to be made a party to the suit and to defend it. The
right therefore is created by statute and its content
necessarily depends on the provisions of the statute. The
question then really is, what are the defences that sub-S.
(2) makes available to an insurer ? That clearly is a
question of interpretation of the sub-section.
Now the language of sub-s. (2) seems to us to be perfectly
plain and to admit of no doubt or confusion. It is that an
insurer to whom the requisite notice of the action has been
given ” shall be entitled to be made a party thereto and to
defend the action on any of the following grounds, namely,”
after which comes an enumeration of the grounds. It would
follow that an insurer is entitled to defend on any of the
grounds enumerated and no others. If it were not so, then
of course no grounds need have been enumerated. When the
grounds of defence have been specified, they cannot be added
to. To do that would be adding words to the statute.
Sub-section(6) also indicates clearly how sub-s. (2)should
be read. It says that no insurer to whom the notice of the
action has been given shall be entitled to avoid his
liability under sub-s. (1) ” otherwise than in the manner
provided for in sub-section. (2)”. Now the only manner of
avoiding liability provided for in subs. (2) is by
successfully raising any of the defences therein mentioned.
It comes then to this that the insurer cannot avoid his
liability except by establishing ,such defences. Therefore
sub-s. (6) clearly contemplates that he cannot take any
defence not mentioned in subS. (2). If he could, then he
would have been in a position to avoid his liability in a
manner other than that
181
provided for in sub-s. (2). That is prohibited by sub-s.
(6).
We therefore think that sub-s. (2) clearly provides that an
insurer made a defendant to the action is not entitled to
take any defence which is not specified in it.
Three reported decisions were cited at the bar and all of
them proceeded on the basis that an insurer had no right to
defend the action except on the grounds mentioned in sub-s.
(2). These are Sarup Singh v. Nilkant Bhaskar (1), Royal
Insurance Co. Ltd. v. Abdul Mahomed (2) and The Proprietor,
Andhra Trading Co. v. K. Muthuswamy (3). It does not appear
however to have been seriously contended in any of these
cases that the insurer could defend the action on a ground
other than one of those mentioned in sub-s. (2).
The learned counsel for the respondents, the plaintiffs in
the action, referred us to the analogous English statute,
The Road Traffic Act, 1934, in support of the view that the
insurer is restricted in his defence to the grounds set out
in sub-s. (2). But we do not think it necessary to refer to
the English statute for guidance in the interpretation of
the section that we have to construe.
We proceed now to consider the arguments advanced by the
learned Solicitor-General who appeared for the appellants.
He contended that there was nothing in sub-s. (2) to
restrict the defence of an insurer to the grounds therein
enumerated. To support his contention, he first referred to
sub-s. (3) of s. 96 and said-that it indicated that the
defences that were being dealt with in sub-s. (2) were only
those based on the conditions of the policy. His point was
that sub-s. (2) permitted defences on some of those
conditions and sub-s. (3) made the rest of the conditions of
no effect, thereby preventing a defence being based on any
of them. He said that these two sub-sections read together
show that sub-s. (2) was not intended to deal with any
defence other than those arising -out of the conditions of
the policy, and as to other defences therefore sub-s. (2)
contained no prohibition. He further
(1) I.L.R. [1953] Bom. 296. (2) I.L.R. [1954] Bom. 1422.
(3) A.I.R. 1956 Mad. 464.
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said that as under sub-s. (2) an insurer was entitled to be
made a defendant to the action it followed that he had the
right to take all legal defences excepting those expressly
prohibited.
We think that this contention is without foundation. Sub-
section (2) in fact deals with defences other than those
based on the conditions of a policy. Thus cl. (a) of that
sub-section permits an insurer to defend an action on the
ground that the policy has been duly cancelled provided the
conditions set out in that clause have been satisfied.
Clause (c) gives him the right to defend the action on the
ground that the policy is void as having been obtained by
non-disclosure of a material fact or a material false
representation of fact. Therefore it cannot be said that in
enacting sub-s.(2) the legislature was contemplating only
those defences which were based on the conditions of the
policy.
It also seems to us that even if sub-s.(2) and sub-s.(3)
were confined only to defences based on the conditions of
the policy that would not have led to the conclusion that
the legislature thought that other defences not based on
such conditions, would be open to an insurer. If that was
what the legislature intended, then there was nothing to
prevent it from expressing its intention. What the
legislature has done is to enumerate in sub-s. (2) the
defences available to an insurer and to provide by sub-s.
(6) that he cannot avoid his liability excepting by means of
such defences. In order that sub-s. (2) may be interpreted
in the way the learned Solicitor-General suggests we have to
add words to it. The learned Solicitor-General concedes
this and says that the only word that has to be added is the
word ” also” after the word “grounds”. But even this the
rules of interpretation do not permit us to do unless the
section as it stands is meaningless or of doubtful meaning,
neither of which we think it is. The addition suggested
will, in our view, make the language used unhappy and
further effect a complete change in the meaning of the words
used in the sub-section.
As to sub-s. (6) the learned Solicitor-General contended
that the proper reading of it was that an
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insurer could not avoid his liability except by way of a
defence upon being made a party to the action under sub-s.
(2). He contended that the word it manner ” in sub-s. (6)
did not refer to the defences specified in sub.s. (2) but
only meant, by way of defending the suit the right to do
which is given by sub-s. (2). We think that this is a very
forced construction of sub-s. (6) and we are unable to adopt
it. The only manner of avoiding liability provided for in
sub-s. (2) is through the defences therein mentioned.
Therefore when sub-s. (6) talks of avoiding liability in the
manner provided in sub-s. (2), it necessarily refers to
these defences. If the contention of the learned Solicitor-
General was right, sub-s. (6) would have provided that the
insurer would not be entitled to avoid his liability except
by defending the action on being made a party thereto.
There is another ground on which the learned Solicitor-
General supported the contention that all defences are open
to an insurer excepting those taken away by sub-s. (3). He
said that before the Act came into force, an injured person
had no right of recourse to the insurer and that it was s.
96(1) that made the judgment obtained by the injured person
against the assured binding on the insurer and gave him a
right against the insurer. He then said that being so, it
is only fair that a person sought to be made bound by a
judgment should be entitled to resist his liability under it
by all defences which he can in law advance against the
passing of it.
Again, we find the contention wholly unacceptable. The
Statute has no doubt created a liability in the insurer to
the injured 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 furthermore not convinced that the statute
causes any hardship. First, the insurer has the right,
provided he has reserved it by the policy, to defend the
action in the name of the assured and if he does so, all
defences open to the assured can then be urged by him and
there is no
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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. Secondly, if he has been made to pay
something which on the contract of the policy he was not,
bound to pay, he can under the proviso to sub-s. (3) and
under sub-s. (4) recover it from the assured. It was said
that the assured might be a man of straw and the insurer
might not be able to recover anything from him. But the
answer to that is that it is the insurer’s bad luck. In
such circumstances the injured person also would not have
been able to recover the damages suffered by him from the
assured, the person causing the injuries. The loss had to
fall on some one and the statute has thought fit that it
shall be borne by the insurer. That also seems to us to be
equitable for the loss falls on the insurer in the course of
his carrying on his business, a business out of which he
makes profit, and he could so arrange his business that in
the net result he would never suffer a loss. On the other
hand, if the loss fell on the injured person, it would be
due to no fault of his; it would have been a loss suffered
by him arising out of an incident in the happening of which
he had no hand at all.
We therefore feel that the plain words of sub-s.(2) should
prevail and that no ground exists to lead us to adopt the
extraordinary course of adding anything to it. We think that
the High Court was right in the view that it took,
In the result these appeals are dismissed with costs.
Appeals dismissed.
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