British India General Insurance Co. Ltd. vs Captain Itbar Singh and Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 413 and 414 of 1958

Decision Date: 11 May 1959

Coram: Subba Rao, Das, Sarkar

In this matter the Supreme Court of India rendered its judgment on 11 May 1959. The petitioner was British India General Insurance Co., Ltd., and the respondents were Captain Itbar Singh and several others. The case was listed before a bench of the Court and concerned the Motor Vehicles Act, 1939, specifically sections 95 and 96. The dispute arose out of a suit for damages that had been filed by a third party against the owner of a motor car, wherein the owner was insured against third‑party risks under a policy issued by the petitioning insurer. The insurer was thereafter added as a defendant to the suit pursuant to section 96(2) of the Motor Vehicles Act, 1939.

The third‑party plaintiff alleged damages for negligent driving and sought recovery from the car owner. After the insurer was impleaded under section 96(2), it argued that the defenses available to it were not limited solely to those enumerated in that subsection. The insurer contended that it could rely on any defense that the assured himself might have raised, provided that, in accordance with section 96(3), it could not invoke the specific conditions of the insurance policy as a defense. The Court held that an insurer who is made a defendant under section 96(2) is not entitled to defend the action on any ground that is not expressly specified in that provision. Consequently, the insurer's claim to a broader range of defenses was rejected.

The appeals, numbered 413 and 414 of 1958, were filed in the civil appellate jurisdiction against the order dated 27 April 1955 of the Punjab High Court in Civil Revisions Nos. 81‑D of 1953 and 96‑D of 1953. The hearings took place on 21, 22, 23 and 24 April 1959, with the Solicitor General for India, C. K. Daphtary, appearing for the Government, and counsel Ram Behari Lal, D. K. Kapur and Sardar Bahadur representing the appellants. The central issue before the Court was the interpretation of section 96 of the Motor Vehicles Act, 1939. The Court explained that the purpose of sub‑section (2) of section 96 is to list the grounds based on the insurance policy on which the insurer may rely for its defence, while sub‑section (3) renders certain policy conditions ineffective against a third party. Both subsections deal solely with policy conditions and should not be read to exclude other defences that the insurer might wish to raise, such as the absence of an accident, plaintiff negligence, or contributory negligence. The Court observed that a person who is joined as a party to an action has the right to assert any defence permissible at law. References were made to the observations of Justice Subba Rao, who queried whether the insurer could be joined as a party apart from the statute and whether Order 1, Rule 10 of the Code of Civil Procedure applied, and to Justice Das, who asked whether the statute confers a right on the insurer to be joined as a party that it previously did not possess. The Court concluded that, although the statute indeed grants the insurer the right to become a party to the suit, sub‑section (2) confines the insurer’s statutory defences to those expressly listed, and it cannot rely on policy conditions as a defence under section 96(3).

It was observed that the statute confers upon the insurer a right to be joined as a party to the suit filed by the injured person, a right which the insurer did not possess before the enactment of the statute. The Court then turned to the question of whether subsection (2) of the statutory provision restricts the insurer’s ability to defend the suit solely on the grounds enumerated in that subsection. The argument presented was that subsection (2) merely enumerates the defences that arise from the terms and conditions of the insurance policy, and that it does not intend to bar the insurer from raising any other defence that the law permits. It was further submitted that, had the legislature intended to limit the insurer to those specific defences, the language of the provision would have employed the word “only” rather than the words “any of” that appear before the phrase “the following grounds.” The legislature, according to this interpretation, intended that the insurer could defend the action not only on the grounds listed in subsection (2) but also on any additional grounds available under law. The Court noted that if the provision were clear, no additional words could be inserted, yet the counsel maintained that the statutory language was ambiguous because it could be read either as allowing other defences or as confining the insurer to the matters set out in subsection (2). Consequently, it was urged that the Court should interpret the provision in a manner that serves the interests of justice. The insurer, being made liable to satisfy the judgment, would suffer extreme hardship if it were prevented from defending the suit on its merits. Apart from the situations covered by subsection (2), the insurer would be condemned unheard, a result that the legislature could not have intended. The counsel also pointed to decisions such as I.L.R. 1953 Bom. 109, I.L.R. 955 Bom. 39 and I.L.R. 1955 Bom. 278, which, while holding that the insurer’s defences are limited to those in subsection (2), nevertheless recognise the hardship created by that limitation. In those cases, the hardship was mitigated by allowing the insurer to defend in the name of the insured, a procedure that, although not endorsed as correct, demonstrates the existence of difficulty. Questions were raised about how such a defence could be effected and recorded, noting the absence of any procedural provision, even under section 151 of the Code of Civil Procedure. Although that particular procedural issue did not arise for determination in the present appeal, the counsel argued that the hardship identified by the Bombay cases could be avoided if the interpretation of subsection (2) advocated herein were adopted. Regarding subsection (6), the argument was that it merely prohibits the insurer from avoiding liability by any method other than that prescribed in subsection (2). Subsection (2) specifies that the insurer should apply to be made a party, and therefore the insurer can avoid liability only by being joined as a party, while retaining the freedom to raise any defence it wishes, including those listed in subsection (2).

The Court observed that an insurer could escape liability only by being joined as a party to the proceeding. It explained that the term “manner” used in subsection (6) related solely to the procedural step the insurer might follow, and did not limit the substantive grounds on which the insurer could rely. Accordingly, the insurer was permitted to avoid liability merely by being joined as a party, but thereafter it could raise any defence it chose, including those enumerated in the relevant subsection. The Court warned that, without such a procedure, the third‑party claimant and the assured could conspire, resulting in a judgment that the insurer would be compelled to satisfy without having been given an opportunity to defend itself. Alternatively, the case might be decided by default against the assured or might be settled on terms unfavorable to the insurer. The Court emphasized that the insurer was the real party affected by the litigation, yet it was afforded no right to be heard except on the narrow grounds specified in subsection (2). By contrast, the assured was described as a nominal party who was unlikely to contest the case, because the decree would have to be fulfilled by the insurer. The Court held that the legislature could not have intended such an outcome, as it would violate the principles of natural justice that a party likely to be affected should be allowed to be heard on the merits.

The Court further noted that counsel for the respondent, T. P. S. Chawla together with Dipak Datta Choudhry, had referred to Chapter VIII of the Motor Vehicles Act, 1939, which drew upon various English statutes as reflected in the Report of the Motor Vehicles Insurance Committee 1936‑37, known as the Roughton Committee. For a proper understanding of section 96, the Court said it was necessary to examine the historical evolution of compulsory third‑party insurance law in England. Prior to 1930, England had no system of compulsory insurance covering third‑party risks. When an accident occurred, the injured third party could sue the motorist and obtain damages, but if the motorist was insolvent or a “man of straw,” the injured party often could not secure compensation. The series of Road Traffic Acts were enacted to address this deficiency. Even where the motorist possessed an insurance policy, the injured third party faced difficulties because there was no direct right of action against the insurer. In the event of the assured’s insolvency, the injured party would rank merely as an ordinary creditor and would not receive full satisfaction of the decree. The Third Parties’ Rights Against Insurers Act 1930 introduced a system of statutory subrogation to remedy this problem, as noted in Halsbury’s Third Edition, volume 22, pages 339 and 372. The provisions of that Act were substantially reproduced in section 97 of the Motor Vehicles Act, thereby allowing the third party to sue the insurer directly in appropriate cases. Subsequently, the Road Traffic Act 1930 established a scheme of compulsory insurance: section 35(1) made third‑party insurance mandatory, a provision mirrored in section 94(1) of the Motor Vehicles Act, and section 36 of the English Act was largely incorporated into section 9.5 of the Motor Vehicles Act.

Section 38 of the Motor Vehicles Act of 1930 rendered certain policy conditions ineffective for the benefit of third parties. The purpose of that provision was to ensure that a claim by an injured third party would not be defeated merely because the assured had failed to comply with, or had breached, particular conditions of the insurance policy. This principle is discussed in Shawcross on Motor Insurance, second edition, pages 219 and 277. However, the 1930 Act was not considered sufficient by the legislature. In 1934 a further Road Traffic Act was enacted, and its main objective was to compel insurers to satisfy any judgment obtained against the insured, as noted in Shawcross, page 271.

The 1934 Act envisioned three separate causes of action among the parties involved. The first cause of action allowed an injured third party to sue the assured directly. Under section 10(1) of that Act, which is now reproduced in section 96(1) of the Motor Vehicles Act, the insurer was placed under an obligation to satisfy the decree pronounced against the assured. If the insurer failed to comply with that obligation, the injured third party acquired a direct right of action against the insurer, based upon the judgment obtained against the assured. This principle is reflected in Shawcross, page 296, and in Halsbury’s Laws of England, third edition, volume 22, pages 374‑375.

The second cause of action arose when the third party, after obtaining a judgment against the assured, sought to enforce that judgment against the insurer. In that circumstance the insurer could be sued directly. The commentary in Shawcross, page 296, expresses doubt that even the defence of collusion would be available to the insurer in this second action.

Section 10(2) of the Road Traffic Act of 1934, which is substantially reproduced in section 96(2)(a) of the Motor Vehicles Act, provides that, in certain specified circumstances, the insurer’s liability ceases. To understand section 96(2)(b), it is necessary to keep in mind both section 38 of the 1930 Act and section 12 of the 1934 Act, each of which made particular policy conditions ineffective against third parties. When the Motor Vehicles Act was drafted, the legislature reversed the style of expression. In section 96(2)(b) the legislature expressly enumerated the conditions on which an insurer may rely as a defence against a third‑party claim, thereby removing any doubt or uncertainty.

Section 10(3) of the 1934 Act gave the insurer the right to obtain a declaration that it was not liable under the policy because of non‑disclosure or misrepresentation of a material fact. In such an action the insurer was required to serve notice on the injured third party, who then had the right to join the proceeding as a party and to oppose the insurer’s claim. This constitutes the third cause of action. The same outcome is achieved through section 96(2)(c) of the Motor Vehicles Act, which consolidates the three distinct actions that existed under English law into a single proceeding. This consolidation is intended to save time and expense and to allow the three parties to resolve their respective rights and liabilities in one suit.

Nevertheless, section 96 does not confer any greater rights on any party than those that existed under English law. At common law, an insurer did not have the right to intervene in the action brought by the injured party against the insured, nor could it contest the claim on its merits, such as by arguing that no accident occurred, that there was no negligence, or that contributory negligence applied. The

In this case the insurer could escape liability only by demonstrating that a circumstance connected with the policy exempted him from responsibility. That limited ability to avoid liability is the specific right that subsection (2) of section 96 preserves. Subsection (2) does not grant the insurer any extra powers beyond those he already possessed at common law or under the English statutes. If the interpretation advocated by the Solicitor‑General were adopted, the insurer would acquire a right that he had never previously enjoyed, and that would be inconsistent with the purpose of Chapter VIII, which is designed to protect the injured third party rather than to benefit the insurer. Consequently, the insurer is neither a necessary nor a proper party to the suit brought by the injured third party against the assured under Order 1, Rule 10 of the Code of Civil Procedure. (The judge noted that it is unnecessary to consider Order 1, Rule 10 because the Solicitor‑General did not rely upon that provision.) There is no ambiguity in the language of section 96(2); the subsection plainly enumerates the defences that are available to the insurer, and it is not permissible to expand those defences beyond the list. Subsection (6) confirms this limitation by expressly preventing the insurer from evading liability in any “manner” other than the one described in subsection (2). The “manner” mentioned in subsection (2) therefore includes both the procedural step of joining the action as a party and the substantive grounds on which the insurer may defend himself. To read the provision otherwise would render subsection (2) redundant. If the legislature had intended to allow the insurer to rely on additional grounds, it could simply have provided that the insurer was entitled to join as a party without specifying the defenses. Because subsection (2) defines the defenses, the legislative intent was clearly to restrict the insurer to those particular defenses. (The judge also observed that even if the injured third party and the insured were to collude, or if a judgment were entered by default, the insurer could not set aside the judgment or bring a separate suit to do so.) In the judge’s view, any suit for that purpose is barred because it would contravene subsection (6), which would otherwise permit the insurer to avoid liability in a prohibited “manner.” The judge further held that giving full effect to the provision as it stands does not create any hardship, since the likelihood of collusion is remote and essentially illusory. By virtue of section 96(3), the insurer is entitled to recover from the insured any sums that the insurer has paid but was not obligated to pay because of breaches of conditions in the policy, even though those conditions have been rendered ineffective against the third party. Section 96(4) gives the insurer the right to recover from the assured the excess amount that the insurer is compelled to pay under section 95, beyond the insurer’s contractual obligations. The judgment therefore remains against the assured, who is the party primarily liable, and is merely enforceable against the insurer for the amounts recoverable under these sub‑sections. Apart from these rights, the insurer has no additional remedies.

Section 1(3) of the Motor Vehicles Act, 1939 authorised insurers, for six years, to incorporate protective provisions into their policies and to adopt measures that would safeguard them against liabilities the assured might otherwise impose. In practice, the majority of insurers have responded by including a control of proceedings clause in their policy documents, as noted in Halsbury, third edition, volume 22, page 338. The legislative scheme recognized that ultimately some party must bear the loss resulting from a motor accident, and therefore endeavoured, as practicable, to ensure that the loss falls on the person who caused the accident. However, where the insured lacks sufficient financial means, the statutory alternatives reduce to either allowing the loss to be suffered by the injured party or shifting it onto the insurer. The legislature, exercising its judgment, provided that in such circumstances the loss should be borne by the insurer, reflecting the view that the insurer’s business inherently includes the possibility of paying such losses. Consequently, when an insurer enters into a contract of insurance, it does so with the contemplation that it may be required to discharge the loss incurred by the insured. The decisions from the Bombay jurisdiction, which were cited by the Solicitor General, are correct insofar as they affirm that the insurer may rely only on the defences enumerated in subsection (2). Nevertheless, those decisions are erroneous in assuming that the restriction imposed by subsection (2) creates a hardship for the insurer. The Bombay rulings appear to rest upon a misinterpretation of the English cases Windsor v. Chalcraft, [1939] 1 K.B. 279, and Jacques v. Harrison, 12 Q.B.D. 136, together with the appellate decision 12 Q.B.D. 165. These cases failed to notice that the statutory provisions analogous to section 24(5) of the Judicature Act and Order 27, Rule 15 of Rules of Supreme Court are not as expansive as English provisions. Order 9, Rule 7 of Code of Civil Procedure permits a decree to be set aside only upon application by the defendant, whereas Order 27, Rule 15 of Supreme Court Rules imposes no comparable limitation. There exists, under current law, no recognized procedure by which an insurer may be permitted to defend a suit in the name of the insured. Permitting such a defence under section 151 of the Code of Civil Procedure would conflict with section 96(6) and would enable the insurer to evade liability in a manner not sanctioned by the statute. The Bombay decisions did not address subsection (6) at all, rendering the procedural approach they advocated untenable. Counsel for the Solicitor General argued that, if the insurer could assume all defences in the name of the insured, this would provide a reason to interpret subsection (2) as not limiting insurer’s available defences. The Court rejected that line of argument, holding that the proposition was incorrect. The discussion then turns to the case reported as Windsor v. Chalcraft, [1939] 1 K.B. 279, which…

In this matter the Court observed that the dissenting judgment of Slesser, L.J., articulates the correct legal position. The judgment of Greer, L.J. is described as showing that he was in considerable doubt about the proper legal rule but felt bound by the earlier judgments reported in jacques v. Harrison, 12 O.B.D. 165. The Court noted that McKinnon, L.J. proceeded on the premise that the assured was only a nominal defendant, a view the Court had already submitted was incorrect. The Court further stated that even under English law the insurer could recover against the assured, citing Halsbury, 3rd Edn., Vol. 22, pp. 374, 379, 385. The decision in Windsor v. Chalcraft was identified as having been rendered in May 1038, and the Motor Vehicles Act was recognized as having been enacted in February 1939, leading the Court to consider it legitimate to assume that the drafters of the Act were aware of that case. The Court submitted that the real purpose of sub‑s. (6) was to give effect to the view expressed by Slesser, L.J., although Das, J. characterized that submission as “rather far‑fetched.” The Court rejected that characterization and noted that even in England the view of Slesser, L.J. appears to have been approved. Subsequent English cases were said to show that the principle in Windsor v. Chalcraft should not be extended, with reference to Murfin v. Ashbridge [1941] 1 All E.R. 231. The Court explained that it was not necessary to expressly overrule Windsor v. Chalcraft because, in 1946, the Motor Insurers Bureau was set up in England, making an insurer bound to satisfy a judgment obtained by a third party against a motorist even when that motorist was uninsured, as recorded in Halsbury, 3rd Edn., Vol. 22, pp. 382 et seq., and Shawcross, ibid, Introduction LXXXVII et seq. This, the Court said, demonstrates the strong policy to protect third parties. The Court observed that the words of s. 96(2) and (6) clearly indicate that the insurer may take only the defences mentioned in sub‑s. (2). However, the Court added that if any doubt remains, a consideration of the historical development of the law and the legislative objects resolves the doubt in favour of the legislature’s intention. In reply, C. K. Daphtari argued that it is wrong to say that at common law the insurer could not be joined as a party, noting that at common law the guarantor or indemnifier could be joined by means of third‑party procedure, citing I.L.R. 35 All. 168, Halsbury, 3rd Edn., Vol. 18, p. 535, and Gray v. Lewis, L.R. (1873) 8 Ch. 1035, 1058. He further stated that, apart from common law, the insurer could be joined as a party under Order I, Rule 10 of the Code of Civil Procedure, relying on United Provinces v. Atiqa Begum [1941] A.C. 16. He argued that a person should be joined as a party if his presence is necessary for an effectual and complete adjudication, and therefore the insurer ought to be joined as a party and consequently may take all defences. Chaula, in reply, pointed out that the passage cited by the Solicitor General from Halsbury, 3rd Edn., Vol. 18, p. 535, is actually against his position, and that footnote (e) shows that at common law the insurer could not be

It was asserted that an insurer could not be joined as a party to an action brought by the insured because at common law there was no such provision for a third‑party procedure. The commentary further noted that even in England the possibility of joining an insurer under a third‑party procedure was doubtful, as discussed in Shawcross on pages 150 and 151. Moreover, the commentary emphasized that the jurisdiction of Punjab possessed no third‑party procedure at all. The authorities cited, namely the case reported in 35 All. 168 and the decision in L.R. 8 Ch. A. 1035 from 1873, were also placed on the side of the argument that an insurer could not be joined. Consequently, it was concluded that the insurer was neither a necessary nor a proper party, because a complete and effective adjudication could be achieved without the insurer’s presence. The decree, therefore, was to be directed against the assured and not against the insurer. This position was reflected in the curial advice recorded on May 11, 1959.

The judgment of the Court, delivered by Justice Sarkar, concerned two appeals that arose from two separate suits which were heard together. Both suits had been instituted against the owners of motor cars for damages that the plaintiffs claimed to have suffered due to the negligent driving of those vehicles. Each car owner was insured for third‑party risks, and the insurers were subsequently added as defendants pursuant to sub‑section (2) of section 96 of the Motor Vehicles Act, 1939. Although the exact wording of that sub‑section would be set out later, it can be stated at this stage that it provided that an insurer who was added as a party to an action under the provision was entitled to defend the action on the specific grounds enumerated therein. After being added as defendants, the insurers filed written statements in which they raised defences that were not among those listed in the sub‑section. The plaintiffs argued that those written statements should be struck from the record because the insurers were limited to defending the action only on the grounds expressly mentioned in the sub‑section, and on no other grounds. This disagreement created a preliminary question in the suits: what defences were available to the insurers?

In the first suit, the trial court held that the insurer could rely only upon the defences specified in the sub‑section, whereas in the second suit the court adopted the contrary view that the insurers were not restricted to those defences. Both decisions were appealed to the High Court of Punjab. The High Court ruled that the insurers could defend the actions only on the grounds mentioned in the sub‑section and on no others. Dissatisfied with that ruling, the insurers appealed, and the present appeals before this Court arise from those High Court decisions. The central issue before this Court is whether the defences available to an insurer who is added as a party under section 96(2) are limited solely to those enumerated in that provision.

To address this issue, it is necessary to refer to several relevant provisions of the Motor Vehicles Act. Section 94 makes insurance against third‑party risk compulsory for motor vehicles. Section 95 sets out the requirements of the insurance policies and the limits of liability that must be covered. Sub‑section (1) of section 95 specifies that a policy of insurance must be a policy which (a) … (the text is omitted) and (b) insures the person or class of persons specified in the policy to the extent laid down in sub‑section (2) against any liability which may be incurred by them. These provisions provide the legislative backdrop for interpreting the scope of the defences that an insurer may raise when added as a party under section 96(2).

The Court observed that Section 95(2) of the Motor Vehicles Act sets out the limits of liability for which insurance must be effected. In particular, the provision requires that for private cars – the type of vehicles that are the subject of the present appeals – the insurance cover must be for the entire amount of liability that may be incurred. The discussion then moved to Section 96, which became the focus of the parties’ arguments, and the Court set out several of its provisions. Section 96(1) provides that if, after a certificate of insurance has been issued under Section 95(4) in favour of the person who effected the policy, a judgment is obtained against any person insured by the policy for a liability that the policy is required to cover under clause (b) of Section 95(1), then, notwithstanding that the insurer may be entitled to avoid or cancel the policy, the insurer must, subject to the provisions of Section 96, pay to the person entitled to the benefit of the decree an amount not exceeding the sum assured as if the insurer were the judgment debtor, together with any costs and any interest payable under any enactment relating to interest on judgments. Section 96(2) then stipulates that no sum shall be payable by an insurer under Section 96(1) in respect of any judgment unless the insurer had notice through the Court of the commencement of the proceedings, either before or after the judgment, or unless execution of the judgment is stayed pending an appeal. An insurer who receives such notice may be made a party to the proceeding and may defend the action on any of the following grounds: (a) that the policy was cancelled by mutual consent or by a provision in the policy before the accident giving rise to the liability, and that either the certificate of insurance was surrendered to the insurer or the certificate holder has made an affidavit stating that the certificate was lost or destroyed, or that the insurer commenced cancellation proceedings within fourteen days after the accident in compliance with Section 105; or (b) that there has been a breach of a specified condition of the policy, being one of the following conditions: (i) a condition excluding the use of the vehicle for hire or reward where the vehicle was not covered by a permit to ply for hire or reward, for organised racing and speed testing, 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 without a side‑car attached where the vehicle is a motorcycle; (ii) a condition excluding driving by a named person or by any person who is not duly licensed or who has been disqualified from holding or obtaining a driving licence during the period of disqualification; (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 non‑disclosure of a material fact or by a false representation of a material fact.

The judgment recorded that the insurance policy could contain several specific exclusions. The first exclusion applied where a vehicle was used for hire or reward, but on the date the insurance contract was entered into the vehicle did not possess a permit authorising it to ply for hire or reward. The second exclusion related to vehicles employed for organised racing or speed testing. The third exclusion covered a vehicle that was used for a purpose not permitted by its existing permit, particularly when the vehicle in question was a public service vehicle or a goods vehicle. The fourth exclusion applied to a motorcycle that was operated without a side‑car attached. In addition, another clause excluded any driver who was not named in the policy, or who was not duly licensed, or who had been disqualified from holding or obtaining a driving licence during the period of disqualification. A further condition excluded liability for injuries that were caused or contributed to by war, civil war, riot or civil commotion. Finally, the policy could be declared void if it had been obtained through the non‑disclosure of a material fact or by making a false representation of any material particular.

The court further explained the effect of sub‑section (3) of Section 95, which stated that if a certificate of insurance had been issued under sub‑section (4) of the same section to the person who effected the policy, any part of the policy that attempted to limit the insurance of the persons insured by reference to conditions other than those listed in clause (b) of sub‑section (2) would be ineffective with respect to the liabilities that must be covered under clause (b) of sub‑section (1) of Section 95. The provision included a safeguard that any sum paid by the insurer in or towards discharging a liability covered solely by this sub‑section could be recovered from the liable person. Moreover, sub‑section (4) gave the insurer the right to recover any excess amount that it paid beyond the amount for which it would otherwise be liable under the policy, by claiming that excess from the person responsible for the loss. Sub‑section (5) was left blank, while sub‑section (6) stipulated that an insurer who had received notice under sub‑section (2) could not avoid liability to any person entitled to benefit from a judgment referred to in sub‑section (1) except in the manner expressly provided in sub‑section (2). The court noted that the policies involved in the present cases had been issued in accordance with the Act and that the certificate of insurance required by Section 96 had been duly issued. It was observed that sub‑section (1) of Section 96 made the insurer liable for a judgment obtained by an injured person against the assured, but sub‑section (2) provided that the insurer would not be required to pay any sum under sub‑section (1) unless it had first received notice of the proceedings that gave rise to that judgment.

In this case the Court observed that, once an insurer has been served with the notice required by sub‑section (2) of section 96, the statute permits that insurer to be joined as a party to the suit and to defend the proceeding on the specific grounds that are set out in that provision. The appellants argued that, upon being made a party under sub‑section (2), the insurer should be allowed to rely on any defence that is available at law, including those that the assured himself could have invoked, and that the only limitation on the insurer’s right of defence is the prohibition in sub‑section (3) against relying on the conditions of the policy. The Court explained that, apart from the statutory scheme, an insurer has no inherent right to be joined as a party by the injured person in the action against the insured. Sub‑section (2) of section 96 creates that right, and because the right is created by legislation its scope must be read in accordance with the language of the statute. The issue therefore is to determine which defences the statute makes available to the insurer. The Court found the wording of sub‑section (2) to be clear and unambiguous: an insurer who has received the required notice “shall be entitled to be made a party thereto and to defend the action on any of the following grounds, namely,” followed by a list of specified grounds. Consequently, the insurer may rely only on the grounds expressly enumerated and on no others. If the legislature intended broader authority, it would have required additional language; the presence of a specific enumeration indicates that the list is exhaustive, and the statute cannot be expanded by implication. Sub‑section (6) further confirms this interpretation, stating that no insurer who has been given notice may avoid liability under sub‑section (1) “otherwise than in the manner provided for in sub‑section (2).” The only manner of avoiding liability prescribed in sub‑section (2) is the successful raising of one of the listed defences. Therefore, the insurer cannot avoid liability by relying on a defence that is not mentioned in sub‑section (2), because doing so would constitute a way of avoiding liability that the statute expressly forbids. The Court thus concluded that sub‑section (2) unequivocally limits the insurer, once made a defendant, to the defences enumerated therein and bars reliance on any defence outside that list.

The Court observed that an insurer could not rely on any defence that was not expressly specified in sub‑section (2). It noted that three reported decisions were cited before the Court, and each of those decisions proceeded on the basis that an insurer had no right to defend the action except on the grounds mentioned in sub‑section (2). The cases referred to were Sarup Singh v. Nilkant Bhaskar (1), Royal Insurance Co. Ltd. v. Abdul Mahomed (2) and The Proprietor, Andhra Trading Co. v. K. Muthuswamy (3). The Court further observed that none of those decisions contained a serious contention that the insurer could defend the action on a ground other than one of those enumerated in sub‑section (2). Counsel for the respondents, who were the plaintiffs in the underlying action, referenced the analogous English legislation, The Road Traffic Act, 1934, to support the view that the insurer’s defence is limited to the grounds set out in sub‑section (2). However, the Court held that it was unnecessary to consult the English statute for guidance in interpreting the provision that required construction. Turning to the arguments advanced by the Solicitor‑General for the appellants, the Court recorded that the Solicitor‑General contended there was nothing in sub‑section (2) that restricted an insurer’s defence to the enumerated grounds. To support this contention, he first referred to sub‑section (3) of section 96 and argued that it indicated the defences dealt with in sub‑section (2) were only those based on the conditions of the policy. He explained that sub‑section (2) permitted defences on some of those conditions while sub‑section (3) rendered the remaining conditions ineffective, thereby precluding a defence based on any of them. He further submitted that read together these two sub‑sections showed that sub‑section (2) was not intended to address any defence other than those arising out of the policy conditions, and that for other defences sub‑section (2) contained no prohibition. Citing I.L.R. [1953] Bom. 296, I.L.R. [1954] Bom. 1422 and A.I.R. 1956 Mad. 464, he asserted that because an insurer could be made a defendant under sub‑section (2), he was entitled to raise all legal defences except those expressly prohibited. The Court rejected this contention as unfounded. It held that sub‑section (2) actually deals with defences beyond those based on policy conditions. Clause (a) of that sub‑section permits an insurer to defend on the ground that the policy has been duly cancelled, provided the stipulated conditions are satisfied. Clause (c) allows defence on the ground that the policy is void because it was obtained by non‑disclosure of a material fact or by a material false representation. Consequently, the Court concluded that the legislature did not intend sub‑section (2) to contemplate only defences based on policy conditions, and that the provision expressly enumerates the permissible defences.

In this case the Court observed that even if sub‑section 2 and sub‑section 3 were limited strictly to defences that arise from the conditions of the insurance policy, that limitation would not lead to the conclusion that the legislature intended to bar an insurer from relying on any other defences. The Court noted that, had the legislature wished to exclude such additional defences, it could have expressed that intention expressly. Instead, the statute lists in sub‑section 2 the defences that are available to an insurer and, by way of sub‑section 6, stipulates that the insurer may escape liability only by using those listed defences.

The Court further held that to read sub‑section 2 in the manner suggested by the learned Solicitor‑General would require the insertion of words that are not present in the text. The Solicitor‑General conceded that the only word he thought needed to be added was “also” after the word “grounds”. However, the Court explained that the rules of construction do not permit such an addition unless the provision, as it stands, is nonsense or ambiguous, which the Court found not to be the case. Adding the word “also” would, in the Court’s view, render the language awkward and would fundamentally alter the meaning of the words used in the sub‑section.

Turning to sub‑section 6, the Court rejected the Solicitor‑General’s argument that the provision should be read to mean that an insurer cannot avoid liability except by becoming a party to the suit under sub‑section 2. The Solicitor‑General had argued that the word “in” in sub‑section 6 did not refer to the specific defences enumerated in sub‑section 2 but merely indicated the right to defend the suit conferred by that sub‑section. The Court described this construction as forced and untenable. It pointed out that the only way an insurer may avoid liability, as provided in sub‑section 2, is through the defences expressly mentioned there. Consequently, when sub‑section 6 speaks of avoiding liability “in the manner provided in sub‑section 2”, it necessarily refers to those enumerated defences. If the Solicitor‑General’s view were correct, sub‑section 6 would have limited the insurer’s avoidance of liability to the act of defending the suit after being made a party, which is not the intention of the statute.

The Solicitor‑General also advanced the proposition that every defence should be open to an insurer except those expressly withdrawn by sub‑section 3. He argued that, before the enactment of the Act, an injured person could not claim against the insurer, and that s. 96(1) had made a judgment obtained against the assured binding on the insurer, thereby giving the injured person a right of action against the insurer. On that basis, he contended, it would be only fair that a person bound by such a judgment should be permitted to resist liability by invoking all defences that the law would allow against the judgment. The Court found this contention wholly unacceptable. It affirmed that while the statute creates liability for the insurer, it also expressly confines the insurer’s right to avoid that liability to the specific grounds that the statute itself enumerates. The Court declined to add further grounds on the basis of alleged hardship, holding that the statute does not create such hardship because the insurer, if the policy reserves the right, may defend the action in the name of the assured and then raise any defence available to the assured, thereby obviating any claim of an additional defence.

The Court held the contention to be wholly unacceptable. It observed that the statute undeniably created a liability on the part of the insurer towards the injured person, but the same statute expressly limited the insurer’s right to avoid that liability to the specific grounds enumerated within it. The Court stated that it could not add additional grounds to those written in the statute merely on the basis of perceived hardship, and further expressed that it was not convinced the statute itself caused any hardship. Firstly, the Court noted that, where the insurer had reserved a right in the policy, it could defend the action in the name of the assured; by doing so, the insurer could raise all defences that were available to the assured and there was no other defence that the insurer claimed to be entitled to raise. Consequently, any potential hardship could be avoided by the insurer exercising the right to defend the action in the assured’s name, a right that the insurer possessed in full. Secondly, the Court explained that if the insurer were compelled to pay an amount that, according to the policy contract, it was not bound to pay, the insurer could recover that amount from the assured under the proviso to sub‑section (3) and under sub‑section (4). The argument that the assured might be a “man of straw” and that the insurer might be unable to recover from him was dismissed by the Court as merely the insurer’s bad luck. The Court further pointed out that, in such a scenario, the injured person would also have been unable to recover damages from the assured, the person who caused the injury. Since the loss had to be borne by someone, the statute deliberately placed that loss on the insurer. The Court found this arrangement equitable because the loss fell on the insurer in the ordinary course of its business, a business from which it earned profit and could organise so that, in net effect, it would not suffer a loss. By contrast, if the loss were placed on the injured person, it would occur through no fault of his, arising from an incident over which he had no control. Accordingly, the Court concluded that the plain wording of sub‑section (2) must prevail and that no reason existed to adopt an extraordinary approach of adding anything to it. The Court affirmed that the High Court had been correct in its view and accordingly dismissed the appeals with costs.