Court modifies tribunal's exoneration of insurer, emphasizing protection of minor claimant's rights and allowing insurer to recover from owner and driver later
In a significant judgment dated 24th September 2026, the Rajasthan High Court in the case of Yar Mohammad v. Khudabaksh and Ors., delivered by Mr. Farjand Ali, J., addressed the contentious issue of insurance liability arising from an accident involving a goods vehicle carrying unauthorized passengers. The appeal arose from a Motor Accident Claims Tribunal's award of Rs. 4,81,000 with interest to a minor claimant injured in the accident, while completely exonerating the Insurance Company from liability on grounds of breach of policy conditions.
Facts of the Case:
The claimant, a 10-year-old minor, was traveling as a passenger in a Bolero Camper registered as a goods vehicle, along with relatives to visit a Dargah. The vehicle met with an accident due to rash and negligent driving by the driver, resulting in the claimant's injuries. The Tribunal found liability against the vehicle owner and driver but exonerated the Insurance Company on two main grounds: the driver did not have a valid transport vehicle license, and the carriage of passengers in a goods vehicle without a permit breached the insurance policy.
Contentions and Court's Analysis:
The appellant-owner challenged the Tribunal's decision to fully absolve the insurer, arguing the insurance policy was valid, the driver held a valid Light Motor Vehicle (LMV) license, and the insurer must satisfy the award first before recovering any breach-related amount from the owner or driver.
The Insurance Company contended that since the vehicle was a goods vehicle used for unauthorized passenger carriage without permit or premium payment, and the driver lacked a transport vehicle license, it had no liability under the policy.
The Court critically examined these contentions and relied on binding Supreme Court precedents, including Mukund Dewangan v. Oriental Insurance Co. Ltd. and the Constitution Bench decision in Bajaj Allianz General Insurance Co. Ltd. v. Rambha Devi (2024), which clarified that a driver holding an LMV license is authorized to drive a transport vehicle falling under the LMV class without a separate transport endorsement. Thus, the Court overturned the Tribunal's finding that the driver's license was invalid due to lack of transport endorsement.
However, the Court upheld the finding that carrying passengers in a goods vehicle without a requisite permit violated the terms of the insurance policy and the Motor Vehicles Act. The owner himself admitted the lack of such a permit, confirming a breach of policy conditions.
The Court further analyzed the insurance policy, noting that although the seating capacity was listed as 4+1, the policy specifically limited use to carriage of goods. Mere seating capacity does not equate to permission for unauthorized passenger carriage. Hence, the insurer was not contractually bound to indemnify for the breach.
Importantly, the Court emphasized the statutory position under Section 147 of the Motor Vehicles Act, which does not compel insurers to cover unauthorized passengers in goods vehicles. Therefore, the insurer's ultimate indemnity liability was negated by the breach.
Protecting the Minor Claimant's Interests:
Despite the breach, the Court invoked the "pay and recover" principle, widely recognized by the Supreme Court, which directs insurers to satisfy compensation awards initially in the interest of justice to innocent third-party victims, especially minors, before seeking recovery from the insured. The Court cited recent precedents, including Shyam Lal v. Shriram General Insurance Co. Ltd. (2025) and Anu Bhanvara v. IFFCO Tokio General Insurance Co. Ltd. (2019), to support this approach.
The Court held that complete exoneration of the insurer would unfairly prejudice the minor claimant who had obtained compensation through the Tribunal. Therefore, the Court modified the Tribunal's order to direct the Insurance Company to satisfy the award amount of Rs. 4,81,000 with interest at 6% per annum from 13.11.2017.
However, the insurer retains the right to recover the amount so paid from the vehicle owner and driver, in accordance with law, without needing to file a separate civil suit. The recovery process can be initiated through the Tribunal or Executing Court.
Conclusion:
The Rajasthan High Court partly allowed the appeal, preserving the interests of the injured minor claimant by ensuring immediate compensation while balancing the insurer's rights to recover for breach of policy. The judgment clarifies the legal position on driver licenses for LMV class transport vehicles, unauthorized passenger carriage in goods vehicles, and insurer liability under the Motor Vehicles Act, reinforcing the protective intent of motor vehicle insurance laws towards third-party victims.
Bottom Line:
Motor Vehicles Act - Goods vehicle carrying unauthorised passengers without permit - Driver holding LMV licence can drive transport vehicle falling within LMV class and absence of separate transport endorsement is not a valid ground to exonerate insurer - However, carriage of passengers in goods vehicle without requisite permit constitutes breach of policy conditions - In case of injured minor third-party claimant, insurer directed to satisfy award first and recover amount from owner and driver.
Statutory provision(s):
Motor Vehicles Act, 1988 - Sections 147, 173; Indian Penal Code Sections 279, 337, 338
Yar Mohammad v. Khudabaksh, (Rajasthan) : Law Finder Doc Id # 2990619
