Supreme Court Refers Matter Of Motor Insurance Policy Transfer On Sale Of Vehicles To Larger Bench

Supreme Court Refers Matter Of Motor Insurance Policy Transfer On Sale Of Vehicles To Larger Bench

It had observed contradictions in two earlier rulings

In a significant turn of events, the Supreme Court has referred the issue of insurance policy handover upon transfer of vehicle ownership under the Motor Vehicle Act, 1988 to a larger bench.

The move resulted, as the bench comprising Justice PS Narasimha and Justice Aravind Kumar noticed inconsistencies in two of its previous judgments.

The Court was referring to the rulings in the Complete Insulations Private Limited v. New India Assurance Company Limited and Surendra Kumar Bhilawe v. The New India Insurance Company Limited cases.

While the judgment in the Complete Insulations case held that the transfer of insurance policy on the sale of vehicles would happen only with third-party risks, the judgment in the Surendra Bhilawe case stated that the transfer applied to the entire policy.

The judges remarked, “It is important to note that the decision in Complete Insulations (supra) is by a bench of three judges and the decision is categorical in its finding that Section 157 of the MV Act has no application to third-party liability. Though this judgment is referred to in the Surendra Bhilawe case, the portion that we have extracted and referred to has not been noticed. Therefore, it is necessary to reconcile the two decisions as the judgment in Complete Insulations is by a three-judge bench, it is appropriate that the matter be placed before a bench of three judges.”

The appellant had purchased a car from its previous owner and applied for a change in registration. The vehicle was insured by the previous owner under the 14 September 2009 insurance policy.

Meanwhile, two incidents occurred on 25 March 2010. One, the registration of the vehicle was transferred in the name of the appellant. Two, the appellant met with an accident while driving the vehicle.

Thereafter, the appellant submitted a claim with the insurance company (respondent No.1). but the insurance company refused to accept it.

The appellant approached the District Consumer Disputes Redressal Commission (DCDRC) by filing a consumer complaint under Section 12 of the Consumer Protection Act, 1986. The complaint was allowed by the district forum.

Meanwhile, the insurance company appealed before the State Consumer Disputes Redressal Commission (SCDRC), which allowed the appeal.

The SCRDC did so on the grounds that under Section 157(2) of the MV Act, the appellant was liable to inform the insurance company about the change in registration within 14 days. However, as she failed to do so, the claim was rightly repudiated by the insurance company.

Aggrieved by the decision, the appellant filed a revision petition before the NCDRC. However, the petition was dismissed.

Thereafter, the appellant approached the Supreme Court.

The appellant contended that as per Section 157 of the MV Act, there is a deemed transfer of the insurance once the vehicle ownership is transferred. In support of her case, the appellant relied on the decision in the Surendra Bhilawe case, which had identical facts and was a lot similar.

On the other hand, the insurance company argued that Section 157 was not applicable, as it was not a case of third-party liability. It relied on the judgment given in the Complete Insulations case.

In the Complete Insulations case, the three-judge bench of the Apex Court had stated, “It is only in respect of third-party risks that Section 157 of the new MV Act (1988) provides that the certificate of insurance, together with the policy of insurance, shall be deemed to have been transferred in favor of the person to whom the motor vehicle is transferred liability.”

The three judges had further held that under Section 103-A of the old Motor Vehicle Act, 1939, the insurer had the right to refuse the transfer of the insurance certificate and/or the insurance policy, unless the certificate of insurance was about third-party risks.

However, in the Surendra Bhilawe case, the two-judge bench distinguished the Complete Insulations case on the premise that the matter delved on the 1939 MV Act, wherein under Section 103-A, the insurer had the right to refuse to transfer the certificate of insurance and/or the insurance policy unless the certificate of insurance was regarding third-party risks.

The two-judge bench had stated, “Section 157 of the MV Act, 1988 introduces a provision whereby the transfer of insurance certificate and insurance policy were deemed to have been made, where the vehicle, along with the insurance policy, is transferred by the owner to another person. This provision has taken away the insurer's right of refusal to transfer the policy certificate of insurance, which was there in the 1939 MV Act.”

Thus, Justice Narasimha and Justice Kumar affirmed that an authoritative determination was required on the issue relating to the transfer of insurance policy for third party liability by interpreting other provisions of the Insurance Act, 1938, and the Motor Vehicles Act, 1988.

The bench stated, “Apart from the difficulty in reconciling the two judgments, the issue relating to the transfer of insurance policy as a principle incorporated in Section 157 for third-party liability, is to be considered by interpreting the other provisions of the Insurance Act, 1938, and the Motor Vehicles Act, 1988. This is an important issue that requires consideration and authoritative determination.”

The judges added, “In view of the above referred- consideration, we are of the opinion that this appeal should be referred to a bench of three judges. The registry shall place the matter before the Chief Justice for further directions.”