S. Rajendra Babu, J.
1. In this reference under Section 7 of the Karnataka High Court Act, 1961, the question that arises for consideration is:
When a registered owner of a motor vehicle covered by an insurance policy transfers the vehicle to another, but does not secure certificate of transfer of the insurance policy covering the vehicle to the transferee of the vehicle, whether the insurance company is liable to answer the liability arising out of an accident met with by the vehicle after transfer of ownership of the vehicle but during the period for which the insurance policy had been issued?
2. The facts of the case have been fully set out in the order of reference and therefore it is not necessary for me to reiterate the same. A Division Bench of this court in United India Fire & Gent. Ins. Co. Ltd. v. Chennamma 1982 ACJ (Supp) S3 (Karnataka), he'd that in he case of transfer of a motor vehicle unless a notice in the prescribed form was piven to the insurance company concerned under Section 103-A of the Motor Vehicles Act, 1939 (hereinafter referred to as 'the Act'/and the certificate of transfer of insurance was issued or deemed to have been issued, by the force of the said provision, the policy of insurance lapses and consequently the insurance company cannot be saddled with any liability arising out of an accident of a motor vehicle which had been transferred to some other person prior to the date of the accident. One of the learned Judges (Kodandaramayya, J.) who constituted the Full Bench of the Andhra Pradesh High Court in Madineni Kondaiah v. Yaseenfatima 1986 ACJ 1 (AP): 1986 (1) ACC 501, took the view that when the policy of insurance obtained by the original owner of the vehicle is composite one covering the risks for his person, property and the third party claim, on passing of title, the transferee cannot enforce his claim in respect of any loss or damage to the person and the vehicle unless there is a novation, but in so far as the third party risk is covered, the proprietary interest in the vehicle is not necessary and the principal liability continues till the transferor discharges the statutory obligation under Sections 29-A and 31 read with Section 94 of the Act and therefore till he complies with the requirement of section 31 of the Act, the public liability will not cease and that constitutes the insurable interest to keep the policy alive in respect of the third party risks. The learned Judge further held that it must be deemed that the transferor allowed the purchaser to use the vehicle in public place in the said Transitional period and accordingly till the compliance of section 31 of the Act the liability of the transferor subsists and the policy is in operation so far as it relates to third party risks.
3. On the basis of this judgment the Division Bench which heard the matter in the first instance felt that the decision in Chennamma's case 1982 ACJ (Supp) 53 (Karnataka), may require reconsideration and referred the question set out above for our opinion.
4. A perusal of the facts in the Andhra Pradesh High Court decision will show that the vendee of the vehicle used the same without obtaining fresh insurance policy to protect third party interests and the vendee further did not lodge before the registering authority any information as required under Section 31 of the Act for the purposes of transfer of registration of the vehicle in his name. In the present case, there is no dispute that the ownership of the vehicle had been transferred by the registering authority under the Act though the insurance had not been taken by the transferee-owner. The vehicle belonged to one Pyarcjan who sold the same in favour of Mohamad Ruknoddin prior to the date of accident and there is no dispute that the name of Mohamad Ruknoddin was entered as the registered owner in the registration certificate of the vehicle on 14.9.1983, the date of the accident. Therefore, whatever observations that have been made in the decision of the Andhra Pradesh High court are in the context of there being no transfer of registration ii. the name of the purchaser of the vehicle and hence can have no application to a situation with which we are concerned.
5. Even otherwise, let us consider the effect of the judgment rendered by Justice Kodanda-ramayya of Andhra Pradesh High Court The policy of insurance issued to Pyarcjan is in respect of the vehicle specified with details as to its (sic) compositeness, year of manufacture, value, type of body, seating capacity, whether it was anew or a second-hand vehicle and provides for comprehensive risk covering even third party risks. The proposer was, inter alia, asked whether he was the sole owner' of the vehicle and whether the vehicle was registered in his name and the said Pyarejan provided answers in that regard. The proposal and declaration stipulation in the policy formed the basis of the contract and deemed to be incorporated therein. The indemnity under the policy relates to loss or damage of the insured vehicle and in the event of accident caused by or arising out of the use of the vehicle, the liability fur all sums including the claimant's costs and the expenses which the insured is obliged to pay. Certain general exceptions to that liability under the policy and conditions some of which were intended to comply with the provisions of the Act were also incorporated as terms of the policy. It could be seen that the policy issued to the said Pyarejan is thus is compliance with the provisions of Section 95(1)(b) of the Act. If the policy was in force on the date of accident there could be no question of insurance company's liability to third patty risk being doubted. There is no terms in the contract of insurance in the present case providing for continuance of policy on transfer of ownership of vehicle by the insured during the currency of the policy. Chapter VIII of the Act deals with insurance of motor vehicles against third any risks and it mandates that motor insurance against third party risks is compulsory for use of a motor vehicle in a public place and Section 95 (1Kb) indicates the kinds of risk such a party should cover in respect of a particular class of vehicle and in respect of the said Pyarejan's vehicle the policy should immune him to the extent specified in the section against any liability which may be incurred by him in respect, of death or bodily injury to any person caused by or arising out of the use of the vehicle in a public place. The said Chapter also makes it clear that policy should be in express terms and it insures the person referred to in it and in respect of the vehicle to which it relates.
6. A contract of insurance is between the insurer and the insured, the subject-matter being the vehicle specified in it and it is the risk arising out of its use that the insurer undertakes to compensate against. Where such a contract provides for indemnity to the assured against third party risks, the third party who is a stranger to the contract, cannot enforce it against the insurer. Neither the general principles of law relating to contracts nor the common law gives a third party a cause of action against the insurer. If a third party risk arises under the policy it is entirely a matter between the insurer and the insured governed by the terms of the policy. Section 96(1) of the Act makes it obligatory on the part of the insure to meet or satisfy an award made by the Accidents Claims Tribunal against the person insured in respect of such third party risks. Thus, for the purpose of Section 96(1) the insurer could be deemed to be a judgment-debtor under Section 96(2) of the Act the insurer can be made a party, so that he may defend that action by the third party against the insured which also enumerates the grounds, the insurer may take up for defending himself. The scheme of the provision is that no insurer who had notice under Section 96(2) is entitled to avoid liability to the party other, isc than in the manner provided for in Sub-section (2) thereof. Thus, after the insured has parted with his vehicle, he has no longer any insurable interest to which the policy in his favour can relate and continue to have force. When an insured has parted with his vehicle to which the policy can relate and continue to have force affecting there by the basis of contract of insurance as also the specified vehicle to which the indemnity relates as is clear from the details required to be set out in the policy, it is with reference to those details and the history of vehicle and its owner including claims or no claims in the past that premium payable on claims in the past that premium payable on the insurance is determined and the contract is formed. Thus, in the absence of express stipulation in the policy to the contrary, the moment the insured parts with his vehicle the policy relating to it lapses inasmuch as the vehicle is the subjectmatter of the very foundation of contract of insurance. Neither Section 96(1) nor Section 96(2) of the Act results in a policy of motor insurance being continued to operate and not lapse, notwithstanding the fact that the insured during the currency of the policy has parted with the ownership of the vehicle to which the insurance relates. Section 96(1) itself proceeds on the basis that there is a subsisting policy and. ie words to the effect "being a liability covered by the terms of policy" are of particular significance. It is no doubt true that where insurer has been given notice of action, the grounds of his defence in the action are limited to those stated in Section 96(2) and it is not open to the insurance company to avoid liability under the policy but the continued ownership of vehicle with the insured is basic to the subsistence of policy and once the subject-matter of policy is gone, as when parted by the insured, the policy automatically lapsed and there is nothing for the insurer to avoid. In this context, I may refer to what is stated by Raoul Colinvaux in his classic text. "The Law of Insurance", 5th Edn., at page 430 (para 20-17):
Sale of car ends policy: The main cover will usually be by reference to a specified car, owned by the policy-holder. The whole policy will then only remain effective while he retains an interest in that car. Even if it contains an extension in respect of the use by the policy-holder of any car being used at the time of accident 'instead of the insured car' this extension will cease to be effective once he has parted with the car insured.
While complete change of ownership of a vehicle will put an end to the policy/this is not so when the additional partner joins a partnership in whose name a vehicle is insured.
Section 102 of the Act is to the effect that death of insured if occurs after the happening of an event giving rise to a claim under Chapter VIII of the Act, the cause of action survives against the estate of the insured. If the death of the insured occurs before the happening of such an event then of course the policy of insurance ipso facto lapses and will be of no effect in respect of liability arising thereafter. But the insolvency of an insured does not terminate the contract of insurance on that account Section 97(1) provides that if an insured incurs liability to third party, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything to the contrary in any provision of law, be transferred to and vest in the third party to whom the liability was so incurred.
7. The leading case on the point is that-of Peters v. General Accidents Fire and Life Insurance Co. (1938) 2 All ER 267, which is to the effect that insurers are also not liable if the owner of the vehicle has sold it and handed the insurance policy to the buyer but the buyer has not taken a policy of his own; this causes the policy to lapse when the insured ceases to be the owner of the vehicle insured. Hector Hughes in his book Law Relating to Road Users' Rights and Liabilities of Insurance states the law on the matter thus: Where the assured parts with his interest no one else may recover unless there be the insurer's consent to the assignment of policy and where insurer does so consent, a new contract comes into existence. So also in Rogerson v. Scottish Automobile and General Insurance Co. Ltd. (1931) 1 All ER (Reprint) 606; it was held that if the insured parts with the ownership of the insured vehicle the policy of insurance relating to it at once lapses. This is how Lord Buckmaster in the House of Lords expressed his views:
To me this policy depends upon the hypothesis that there is, in fact, an insured car. When once the car which is the subject of this policy is sold, the owner's rights in respect of it ceases and the policy so far as the car is concerned is at an end.
8. This decision has been consistently followed by all the English Courts. The Court of Appeal in Tattersall v. Drysdaie 193S All ER Reprint 112, was concerned with a clause in the policy extending the cover against third party risks to the temporary user by the insured of another car and during the continuance of the policy the insured sold the car covered by the policy, the subject-matter of insurance. Accident having occurred while the insured used another car, he made a claim and in such circumstances Justice Goddard held:
The policy insured the plaintiff in respect of the ownership and user of the specified car, and when he divested himself of his interest in that car the extension clause ceased to have effect.
9. The leaned Judge was innuenced by the decision of the House of Lords referred to earlier that the subject-matter of insurance was the specified car and that as the assured had parted with it, he no longer was interested in the policy. The learned Judge further observed:
The true view is that the policy insures the assured in respect of the ownership and user of a particular car, the premium being calculated, as was found in Rogerson's case (1931) 1 All ER Reprint 606, partly on value and partly on horse-power...To construe this policy' otherwise would be to hold in effect that two distinct insurances were granted, one in respect of the scheduled car and another wholly irrespective of the ownership of any car.
10. The English courts were also concerned with the provisions analogous to the provisions of Section 96(1) of the Act and therefore the view expressed by this court that on the parting of a vehicle by a seller to a purchaser unless there is compliance under Section 103-A of the Act insurance company will not be liable to a third party is correct.
11. We are also fortified in this view by a decision of a Full Bench of Delhi High Court in Ananrf Sarup Sharma v. P.P. Khurana 1989 AG 577 (Delhi), which held that the third party liability of an insurer ends on transfer of vehicle by the insured. This decision of the Delhi High Court refers to practically all the decisions of the High Courts in India on the subject and they toe-Oriental Fire and General Insurance Co. Ltd. v. Vimal Roy 1972 ACJ 314 (sic) Precto Pipe Co. v. National Insurance Co. Ltd. 1984 ACJ 218 (P & H). Labh Singh v. Surehri Devi, National Insurance Co. Ltd v. Labanya Roy, South India Insurance Co. Ltd v. P.C. Misra, Shantilal Mohanlal v. Aher Bawanji Matde, Balwant Singh v. Jhannubai, Govind Singh v. A.S. Kailasam, B.P. Venkatappa Setty v. B.N. Lakshmiah, Gulab Rai Damodar lapse v. Peter K. Sunder, Automobile Transport (Rajasthan)Pvt. Ltd.v.Dewalal. ' 'The Gujarat High Court in Shantilal Mohanl v. Aher Dawanji Matte 1985 ACJ 505 (Gujarat) : 1985(2) A.C.C. 524, took the view that the policy of insurance is with respect to the insured person and not the vehicle and liability of insurer ceases on transfer of ownership of vehicle. So did several other High Courts as stated earlier.
12. However, the learned Counsel for the claimants contended that in view of the new trend set up in Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan 1987 ACJ411 (SC)" 1987 (1) A.C.C. 413 there being an obligation to take out insurance covering third party risks, without which the motor vehicle cannot be used and the insurance policy cannot provide for exclusion of liability other than what is authorised by section 96 that except to the extent permitted by Section 96 it will be the obligation of the insurance company to satisfy the judgment against persons insured against third party risks. He urged that we should not permit the insurance company to raise the contention that there is no obligation to fulfill the decree passed in a claim arising out of an injury by a vehicle to a third party, as otherwise it would defeat the very purpose of law providing for compensation. The problem that cropped up in that case was, although the owner of a vehicle was vicarious liability for the negligence of the driver if the driver had authorised the cleaner inasmuch as the owner would never give permission to the cleaner to drive the vehicle he would not be held to have violated the conditions of the policy. It was contended on behalf of the insurance company that the insurance company was not liable in that case in view of the exclusion clause as at the point of time when the accident occurred the person who had been driving the vehicle was not the duly licensed person to drive the vehicle and once it was established that the accident occurred when an unlicensed person was driving the vehicle at the time of accident, it would exonerate the insurance company from the liability. The Supreme Court in that decision held that in view of the difficulty in recovering moneys either from the owner or from the driver of a vehicle which was involved in an accident by a third party in most cases and award made by a court decreeing damages would only result in an exercise in futility and make a mockery of the injured victims or the dependants of the deceased. When there is an obligation on the part of the insured not to use the vehicle without third party insurance being in force and that insurance policy might provide for liability walled in by conditions which may be specified in the contract of policy, in order to make the protection real the legislation provided that judgment obtained shall not be defeated by the incorporation of exclusionary clause other than those authorised by Section 96 and by providing that except and save to the extent permitted by Section 96 it will be the obligation of the insurance company to satisfy the judgment obtained against persons insured against third party risks. All that is spelt out in the aforesaid decision is that in the event of there being an insurance policy in force, the insurance company cannot provide for an exclusion clause contrary to Section 96(2) of the Act. Beyond that there is no other immunity to the insurance company and the exclusion clause will have to be read down to the extent it is inconsistent with the main purpose of the third party risks being covered under the compulsion of law. But the question that arises for consideration in the present case is whether there is any insurance contract and not in what manner the clauses therein have to be read and what arc the defences open to the insurance company. The existence or otherwise of an enforceable insurance contract falls outside the scope of Section 96(2), and the basic premise being that the defences referred to in Section 96(2) of the Act are available to an insurance company and therefore the condition-precedent to invoke such defences is the existence of an enforceable insurance policy and an obligation of the insurer to fulfil such a contract. In the absence of existence of a contract or if a contract had lapsed, to read down it in the face of defences open under Section 96(2) has no relevance at all. Policy of insurance is the result of a contract between an insured and an insurer against liability by the latter. If such a contract is in respect of a motor vehicle, Sub-section (5) and Sub-section (1)(b) of Section 95 of the Act provide that it must cover any liability which may be incurred by him with respect to death or bodily injury to a third party. Every such contract involves a proposal and acceptance and there must perforce be a proposer and an acceptor. It is difficult to a accept that a contract exists between an insurance company and an unknown person. Neither Section 94 nor Section 95 nor Section96 has the effect of modifying this basic postulate. The insurer is liable to pay for the tort committed by the owner of the vehicle or his agent who is the assured. If such assured is the seller of the vehicle can he be made liable for an accident which takes place after the sale of vehicle? The discussion made above would make it clear that the ownership of a vehicle being one of the most important ingredients of an insurance contract, in respect of a motor vehicle, it is impossible to accept that buyer would be liable, for what is covered under the policy is the liability of the insured and not of the purchaser. On the transfer of a vehicle, Section 31 of the Act provides-for giving effect to necessary changes, that is, transfer to be effected in the registration certificate. In the same manner the Act also provide separately for transfer of an insurance policy if during its currency the vehicle is sold to another party. If the Act contemplated that transfer of the Vehicle should necessarily result in the transfer of policy of insurance, it would have provided for that by a suitable provision. But, on the other hand, two separate provisions deal with the two aspects separately. Further, insurance policy taken Out in respect of a vehicle after the sale of that vehicle can be made to cover another vehicle owned by the insured. Therefore, it is not always automatic that on the sale of a vehicle the insurance policy also gets transferred. Therefore, philosophy or the doctrine developed in Skandia Insurance Company's case, which bars an insurance policy from containing terms contrary to Section 96(2) of the Act has no application to the controversy arising in this case.
13. In this context it is necessary to refer to one other aspect of the matter, namely, the Motor Vehicles Act, 1939 has been repealed and a new Act has been enacted, that is, the Motor Vehicles Act, 1988 and under Section 157 of the new Act it is provided that where a person in whose favour the certificate of insurance has been issued, transferred to another person the ownership of the motor vehicle in respect of which certificate of insurance and policy is taken, the certificate of insurance and the policy described in the certificate shall be deemed to have been transferred to the person to whom the motor vehicle has been transferred with effect from the date of such transfer. In view of the fact that there has been a change in the law, that is, even without as assignment the law provides for transfer of a policy from 1st July, 1989 when the new Act came into force and the fact that so far as this State is concerned the law had been as was stated in B.P. Venkatappa Setty v. B.N. Lakshmiah, and in United India Fire and General Insurance Co. Ltd. v. Chen-namma, and the same having held the field and the preponderance of authority referred to above also has been in favour of the view we have taken, we do not think it would be necessary to take any other view or differ from the view expressed in the aforesaid two decisions of this court. In the result, we answer the question referred to us as follows:
That the insurance company is not liable to answer the liability arising out of an accident met with by the vehicle after the transfer of ownership but during the period for which the insurance policy is issued. The insurer is entitled to avoid the liability against third party risks on the plea that the insured had sold the vehicle covered by insurance policy before the date of accident without intimation by the owner.