Apex Court on - 'sale letter, transfer of ownership' Name in RC and Insurer's liability

The Chennai police have warned that vehicles of people moving in the city without valid reasons will be seized during the 12-day lockdown presently enforced.  Addressing reporters, the city police commissioner A K Viswanathan said that Anna Salai, the city's main arterial road, will remain closed except for ambulance services. 

During Corona vehicular traffic mellowed down from the madness of the city – though many people are still out there on the streets.  A motor vehicle,   is a self-propelled vehicle, commonly wheeled, that does not operate on rails (such as trains or trams or 4-wheelers) and is used for the transportation of people or cargo. The vehicle propulsion is provided by an engine or motor, usually an internal combustion engine or an electric motor, or some combination of the two, such as hybrid electric vehicles and plug-in hybrids. For legal purpose, motor vehicles are often identified within a number of vehicle classes including cars, buses, motorcycles, off-road vehicles, light trucks and regular trucks.

Ownership is the state or fact of exclusive rights and control over property, which may be any asset, including an object, land or real estate, or intellectual property. Ownership involves multiple rights, collectively referred to as title, which may be separated and held by different parties. The process and mechanics of ownership are fairly complex: one can gain, transfer, and lose ownership of property in a number of ways.   The person recognized by the law as having the ultimate control over, and right to use, property as long as the law permits and no agreement or Covenant limits his or her rights.

Motor Vehicles in India are registered and provided with Registration Certificate.  Insurers also check the RC for determining the ownership, though when it is sold, insurance is sought on – sale letter, sale deed, transfer forms to be used for RTO and host of other documents.  MV Act defines - "owner" as  a person in whose name a motor vehicle stands registered and, where such person is a minor, the guardian of such minor, and in relation to a motor vehicle which is the subject of a hire purchase, agreement, or an agreement of lease or an agreement of hypothecation, the person in possession of the vehicle under that agreement.

A motor vehicle in a public place is potentially a dangerous and lethal instrument. Even when it is without its engine or without petrol, if it is moved down on an incline, even unintentionally, it can cause considerable damage and human injury.  Motor Vehicle Act mandates that when the vehicle is in public place, there must be a policy of insurance protecting the liability of third parties arising out of usage of the vehicle.     Sec 146 of MV Act :  Necessity for insurance against third party risk. – (1) No person shall use, except as a passenger, or cause or allow any other person to use, a motor vehicle in a public place, unless there is in force in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of this Chapter.

On transfer of ownership, the Liability Only cover, either under a Liability Only policy or under a Package policy, is deemed to have been transferred  in favour of the   person to whom the motor vehicle is transferred with effect from the date of transfer.  However for continuance of the OD portion of coverage, the transferee (new owner) will have to apply within 14 days from the date of transfer in writing.  In case of  Package Policies, transfer of the “Own Damage” section of the policy in favour of the transferee, shall be made by the insurer only on receipt of a specific request from the transferee along with consent of the transferor. If the transferee is not entitled to the benefit of the No Claim Bonus (NCB) shown on the policy, or is entitled to a lesser percentage of NCB than that existing in the policy, recovery of the difference between the transferee’s entitlement, if any, and that shown on the policy shall be made before effecting the transfer.

With this lengthy introduction read this recent judgment of Supreme Court of India delivered on 18.6.2020 in Civil Appeal no. 2632 of 2020 (Surendrakumar Bhilawe Vs New India Assurance Co Ltd)

This appeal is against a judgment and order dated 23.2.2015 passed by the National Consumers Disputes Redressal Commission, New Delhi,  setting aside an order dated 09.1.2014 passed by the District Consumer Disputes Redressal Forum, Raipur and an order dated 22.7.2014 passed by the Chhattisgarh State Consumer Disputes Redressal Commission Pandri, Raipur (C.G).  The Appellant was the owner of Ashok Leyland Truck bearing Registration Number C.G.04/JA 3835, insured with NIA for the period 2.6.2011 to 1.6.2012.   On 13.11.2011, at about 1.45 p.m., while the said truck was on its journey from Raipur to Dhanbad, it met with an accident in Jharkhand. The narration of the accident and the damage to cargo carried are not very relevant to the decision here. 

A spot survey was conducted and later Insurer appointed another for final survey.  The loss was assessed at 4.93 lakhs.  The Insurer issued a  show cause seeking  why the claim of the Appellant should not be repudiated, on the allegation that, he had already sold the said truck to another person  on 11.4.2008. Though there was sale, the Appellant continued to be the registered owner of the said truck, on the date of the accident.  The  Appellant contended that  truck had been purchased with finance from ICICI Bank, and under hypothecation could not be transferred without the consent of ICICI Bank. ICICI Bank had not issued ‘No Objection’ for transfer of the said truck, as the dues of the Bank had not been repaid in full till the date of the accident. Admittedly, however, the Appellant had entered into a sale agreement with the buyer.

The vehicle owner replied to the letter and also sent a legal notice to the Insurer.  The Insurer repudiated the claim and aggrieved by the decision, the appellant approached the District Forum.  In Jan 2014, DF directed the Insurer to pay Rs.4,93,500/- to the Appellant within a month along with interest @ 6% per annum from the date of filing of the complaint.  The Insurer appealed to the State Commission.  When it was dismissed by the State Commission, the Insurer challenged it  before the National Commission by filing the Revision Petition.  National Commission  allowed the Revision Petition, set aside the orders of the District Forum and the State Commission respectively, and dismissed the complaint of the policy holder.

In the forums, the policy holder contended that though he had  entered into a sale agreement with Mohammad Iliyas Ansari, he had not actually transferred ownership of the vehicle to him. Even after the sale agreement, the Appellant had himself been paying instalments, to the bank, towards repayment of the loan obtained by him for purchase of the said truck.  He further contended that he had not been paid the full consideration at the time when the accident occurred.  The vehicle owner  had himself paid insurance premium and taken out the policy; permit too stood in his name and no action had been initiated for transfer of the vehicle.   

Dist Forum allowed the claim but the National Commission set aside the orders of the District Forum and the State Commission, thereby rejecting the concurrent factual finding of both the fora, and dismissed the complaint on the ground that the Appellant had sold his vehicle to Mohammad Iliyas Ansari. The National Commission observed that when an owner of a vehicle sells his vehicle and executes a sale letter without in any manner postponing passing of the title to the property in the vehicle, the ownership in the vehicle passes to the purchaser on execution of the sale letter.  The delivery of the vehicle, to the purchaser, reinforces the title which the purchaser gets to the vehicle, on execution of the sale letter in his favour. The National Commission also drew adverse inference against the Appellant, on the delayed FIR.  National Commission observed that the sale letter ensured handing over of possession and since sale had been contemplated and  completed on the material date, the policy holder was not the owner. 

Before the Apex Court, it was pointed out that the National Forum did not address vital aspects including : - who paid instalments to bank ?  was NoC obtained from Bank and could vehicle transfer be effected without that ?;  who paid the insurance premium ?; who employed the driver of the truck ?; whether any efforts taken to register the vehicle ?; in whose name did the permit stood ?;

It was further held that Sections 19 and 20 of the Sale of Goods Act, 1930, which deal with the stage at which the property in movable goods passes to the buyer, is of no assistance to the Insurer. There can be no doubt that property in a specific movable property is transferred to the buyer at such time as parties to the contract intend it to be transferred, provided such immovable property is free to be transferred, and/or in other words capable of being transferred. If there is an impediment to the transfer, as in the instant case, where ‘No Objection’ of the financier bank was imperative for transfer of the said truck, there could be no question of transfer of title until the impediment were removed, for otherwise the contract for transfer would be injurious to the financier bank, immoral, unlawful and void under Section 10 read with Sections 23 and 24 of the Contract Act, 1872.

The contract in this case, could not possibly have been an unconditional contract of transfer of movable property in deliverable state, but a contract to transfer, contingent upon ‘No Objection” from ICICI Bank, and compliance with the statutory provisions of the Motor Vehicles Act, 1988 and the Rules framed thereunder. Sections 19 and 20 of the Sale of Goods Act are not attracted.  The  National Commission overlooked the definition of ‘owner’ in Section 2(30) of the Motor Vehicle Act, 1988.  It would also be pertinent to note the difference between the definition of owner in Section 2(30) of the Motor Vehicles Act, 1988 and the definition of owner in Section 2(19) of the Motor Vehicles Act, 1939 which has been repealed and replaced by the Motor Vehicles Act, 1988. Under the old Act ‘owner’ meant the person in possession of a motor vehicle. The definition has undergone a change. Legislature has consciously changed the definition of ‘owner’ to mean the person in whose name the motor vehicle stands.

The proviso of MV Act on Transfer of ownership reads :-

1) Where the ownership of any motor vehicle registered under this Chapter is transferred-

(a)      the transferor shall,-

(i)       in the case of a vehicle registered within the same State, within fourteen days of the transfer, report the fact of transfer, in such form with such documents and in such manner, as may be prescribed by the Central Government 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; and

(ii)      ……

(b)      the transferee shall, within thirty days of the transfer, report the transfer to the registering authority within whose jurisdiction he has the residence or place of business where the vehicle is normally kept, as the case may be, 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 transfer of ownership may be entered in the certificate of registration.

(3)    If the transferor of the transferee fails to report to   the registering authority the fact of transfer within the period specified in clause (a) or clause (b) of sub-section (1), as the case may be, or if the person who is required to make an application under sub-section (2) (hereafter in this section referred to as the other person) fails to make such application within the period the period prescribed, the registering authority may, having regard to the circumstances of the case, required the transferor or the transferee, or the other person, as the case may be, to pay, in lieu of any action that may be taken against him under section 177 such amount not exceeding one hundred rupees as may be prescribed under sub-section (5).

Provided that action under section 177 shall be taken against the transferor or the transferee or the other person, as the case may be, where he fails to pay the said amount.

The Court observed that  the National Commission patently erred in holding that the Appellant had been paid the consideration without even examining if Mohammad Iliyas Ansari had paid any instalments to ICICI Bank. The finding of the National Commission that the fact of registration of the said truck in the name of the Appellant was inconsequential is also not sustainable in law.  It is difficult to accept that a person who has transferred the ownership of a goods carriage vehicle on receipt of consideration, would not report the transfer or apply for transfer of registration, and thereby continue to incur the risks and liabilities of ownership of the vehicle under the provisions of law including in particular, under the Motor Vehicles Act, 1988 and other criminal/penal laws. It does not also stand to reason why a person who has transferred the ownership of the vehicle should, for over three years, benevolently go on repaying the loan for purchase of the vehicle, take out insurance policies to cover the vehicle or otherwise discharge obligations of ownership. It is equally incredible that an owner of a vehicle who has paid consideration to acquire the vehicle would not insist on transfer of the permit and thereby expose himself to the penal consequence of operating a goods vehicle without a valid permit.

The Judgment of this Court in Pushpa @ Leela & Ors. vs.  were rendered in the context of liability to satisfy third party claims and as such distinguishable factually. However, the dictum of this Court that the registered owner continues to remain owner and when the vehicle is Insured in the name of the registered owner, the Insurer would remain liable notwithstanding any transfer, would apply equally in the case of claims made by the insured himself in case of an accident.  If  the insured continues to remain the owner in law in view of the statutory provisions of the Motor Vehicles Act, 1988 and in particular Section 2(30) thereof, the Insurer cannot evade its liability in case of an accident.

The policy of insurance in this case, was apparently a comprehensive policy of Insurance which covered third party risk as well. The Insurer could not have repudiated only one part of the contract of insurance to reimburse the owner for losses, when it could not have evaded its liability to third parties under the same contract of Insurance in case of death, injury, loss or damage by reason of an accident.  The Court opined that the National Commission erred in law in reversing the concurrent factual findings of the District Forum and the National Commission ignoring vital admitted facts as stated above, including registration of the said truck being in the name of the Appellant, even as on the date of the accident, over three years after the alleged transfer, payment by the Appellant of the premium for the Insurance Policy, issuance of Insurance Policy in the name of the Appellant, permit in the name of the Appellant even after three years and seven months, absence of ‘No Objection’ from the financier bank etc. and also overlooking the definition of owner in Section 2(30) of the Motor Vehicles Act, as also other relevant provisions of the Motor Vehicles Act and the Rules framed thereunder, including in particular the transferability of a policy of insurance under Section 157.

In view of the definition of ‘owner’ in Section 2(30) of the Motor Vehicles Act, the Appellant remained the owner of the said truck on the date of the accident and the Insurer could not have avoided its liability for the losses suffered by the owner on the ground of transfer of ownership to Mohammad Iliyas Ansari.  Citing reference to more cases including judgment of Apex Court  in Oriental Insurance vs. Sony Cheriyam rendered in the context of liability of an Insurer in terms of the insurance policy and is not attracted in this case, where the claim of the insured has not been rejected on the ground of the same not being covered by the policy of insurance, but on the ground of purported transfer to a third party by entering into a sale agreement.

The Court concluded that they had not dealt with the judgments of the National Commission and/or other Fora under the Consumer Protection Act, 1986, relied upon by the parties, as they are factually distinguishable and are in any case, not precedents binding on this Court. In any case, we have considered and dealt with the submission of the respective parties at length and there allowed the appeal.

The Court thus set aside the order of the National Commission  and the order of the District Forum was  restored.  Apex Court directed the  Insurer to  pay to the Appellant a sum of Rs.4,93,500/- as directed by the District Forum with interest as enhanced by this Court to 9% per annum from the date of claim till the date of payment. The sum of Rs.5,000/- awarded by the District Forum towards compensation for mental agony and Rs.2,000/- awarded towards the cost of litigation, is in our view grossly inadequate. The Insurer shall pay a composite sum of Rs.1,00,000/- to the Appellant towards costs and compensation for the agony caused to the Appellant by withholding his legitimate dues. The amounts as directed above shall be paid to the Appellant within six weeks from date of the judgment and order.

There are learning for all concerned

With regards – S. Sampathkumar

20.6.2020.