Supreme Court Sets Aside High Court Order Allowing Insurer Recovery Where Owner's Lack of Due Diligence Is Not Proved

A bench of Justice K. Vinod Chandran and Justice N. V. Anjaria heard appeals by the owner of a truck challenging High Court directions that allowed the insurer to "pay and recover" compensation it had earlier disbursed after a collision that killed nine passengers and injured two in a Matador van. The core issue before the Court was whether the insurer could recover award amounts from the insured owner where the driver’s driving licence was alleged to be fake and the High Court had found collusion between the owner and the driver.

The Court allowed the appeals and set aside the High Court’s pay-and-recover direction insofar as it mulcted the truck owner with liability to indemnify the insurer. The bench held that the insurer had failed to demonstrate absence of due diligence by the owner at the time of entrustment and had not established a willful breach by the insured that would disentitle the owner from protection under the policy. The Court reiterated established principles that "in order to avoid liability it is not sufficient to show that the person driving at the time of accident was not duly licensed. The Insurance Company must establish that the breach was on the part of the insured." The Court, in its reasoning, observed: "The insurance company from the totality of the circumstances has to bring out the absence of due diligence in the employment of the driver or the entrustment of the vehicle, to prove breach by the insured, which is totally absent in the present case. The High Court had erred in finding that there was collusion between the employer and the employee merely for reason of the driving licence having been produced by the employer and the driver having not contested the claim. The driver, as has been noticed in a number of decisions of this Court, would have kept himself away from the box, for fear of incriminating himself; since a prosecution was pending against him. In any event, the vicarious liability to satisfy the damages caused by the negligence of the employee is on the employer, the later of whom has to contest the matter. Not only was the driving licence, as issued to the driver produced, but, a certificate showing its further renewal was also produced. In fact, we specifically notice that the renewal made is not an automatic renewal which has to be carried out within 30 days of the expiry of a driving licence, as per the Motor Vehicles Act and the Rules made thereunder. Herein the validity period of the licence, originally issued expired on 04.04.1994 and the renewal was on 11.08.1994."

Background The accident occurred on 26 January 1993 at about 2:00 am when a truck and a Matador van collided at an intersection. Nine passengers in the Matador died and two sustained injuries. Claim petitions were filed on behalf of passengers and the Matador owner; the Tribunal found composite negligence of the truck and van drivers at 75:25 and fixed compensation. The insurers of both vehicles paid compensation and appeals followed on liability and quantum. The insurer of the truck, relying on evidence that the driver’s licence was fake, succeeded before the High Court which directed pay-and-recover against the insured owner.

On appeal the Supreme Court examined the record: two licences were produced, certificates from RTO/DTO offices were inconsistent, a driving-licence register from DTO Gurdaspur exhibited interpolations, and a licence allegedly seized at the spot lacked corroborative seizure mahazar or police evidence. The Court underscored that mere production of a licence by the owner’s representative did not justify an inference of collusion; the owner in the cause title was a company and the representative’s act could indicate diligence in producing the document. Relying on precedents including United India Insurance Co. v. Lehru, National Insurance Co. v. Swaran Singh and more recent rulings, the Court applied the settled rule that the insurer must prove breach by the insured (absence of due diligence in employment or entrustment) to escape liability. The Court found that the insurer had not met that burden and that the High Court erred in permitting recovery without such proof. The Supreme Court therefore set aside the High Court’s order insofar as it granted the insurer the right of recovery; other directions and the quantum determinations of the Tribunal, as modified by the High Court, remained undisturbed. The appeals were allowed and pending applications were disposed of.

Case Details: Case No.: 2025 INSC 1204; Civil Appeal Nos.12442-12446 of 2024 (with connected Civil Appeal Nos.12447-12467 and others as per cause list) Case Title: Hind Samachar Ltd. (Delhi Unit) v. National Insurance Company Ltd. & Ors. Appearances: For the Petitioner(s): Mr. Gopal Shankaranarayan, Senior Counsel For the Respondent(s): Dr. Manish Singhvi, Senior Counsel