Owner Not Liable Merely Because Driver Had Fake Licence Without Proof of Collusion or Negligence: Supreme Court Sets Aside High Court's ‘Pay and Recover’ Order Against Truck Owner

"The insurer must prove willful breach or lack of due diligence by the owner — mere production of licence by employer or absence of driver’s testimony does not amount to collusion." - In a significant ruling on October 8, 2025, the Supreme Court held that an insurance company cannot claim recovery from the owner of a vehicle solely on the basis of the driver having a fake driving licence, unless it establishes that the owner was aware of the forgery or failed to exercise reasonable diligence.

Setting aside the “pay and recover” direction issued by the Bombay High Court, a bench comprising Justice K. Vinod Chandran and Justice N. V. Anjaria reiterated that "there is no statutory or contractual obligation upon the insured to verify the authenticity of the driving licence with the RTO". Without pleading or proving lack of care or collusion, no right of recovery arises under Section 149(2) of the Motor Vehicles Act.

“Fake Licence Alone Doesn’t Prove Breach — Insurer Must Prove Owner’s Knowledge or Negligence”: Supreme Court Reaffirms Law on Policy Breach

“The insurer cannot avoid liability merely by showing the driver had no valid licence unless the insured was also at fault.”

The case stemmed from a tragic accident that occurred on January 26, 1993, involving a truck owned by Hind Samachar Ltd. and a Matador van, resulting in the death of nine passengers and injuries to two. The Motor Accidents Claims Tribunal (MACT) found composite negligence on both drivers, fixing the liability in a 75:25 ratio, and directed the insurers of both vehicles to compensate the victims.

However, the High Court, while upholding the composite negligence, permitted National Insurance Co. Ltd., the truck’s insurer, to recover the compensation from the truck owner, after accepting its plea that the driver held a fake licence and alleging collusion between the owner and driver.

Rejecting this reasoning, the Supreme Court ruled: “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 Court emphasized that: “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.”

“Production of Licence by Employer Does Not Establish Collusion” – High Court's Inference Based on Conjecture, Not Evidence

“Suspicion is not proof – no inference of breach or collusion can be drawn solely from who produced the driving licence.”

The High Court had placed weight on the fact that the driving licence was produced by the owner's representative, not the driver himself, and on alleged inconsistencies between two different licences – one issued from DTO Gurdaspur and another from RTO Alwar. It also noted that the driver did not enter the witness box.

The Supreme Court dismantled this reasoning. It observed:

“There can be no suspicion raised merely because the owner had produced the driving licence before Court. It only indicates that the owner had been diligent enough to procure the driving licence from the driver and produce it before the Tribunal.”

The bench also pointed out that: “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.”

Hence, the non-examination of the driver was neither unusual nor suspicious, and certainly not evidence of any willful breach by the employer.

“No Duty to Verify Driving Licence with RTO”: Court Cites Geeta Devi and Swaran Singh to Clarify Owner’s Responsibility

The Supreme Court drew strength from a series of precedents including:

• United India Insurance Co. v. Lehru

• National Insurance Co. Ltd. v. Swaran Singh

• PEPSU RTC v. National Insurance Co. Ltd.

• IFFCO Tokio v. Geeta Devi

In Swaran Singh, a three-judge bench had already clarified:

“Whether despite the fake licence, the plea of default on the part of the owner has been established or not would be a question which will have to be determined in each case.”

In Geeta Devi, the Court deprecated the routine practice of insurers seeking recovery without even pleading the lack of diligence, observing:

“The policy did not require the vehicle owner to undertake verification of the driving licence… Therefore, the claim of the insurance company that it has the right to recover compensation… is without pleading and proof.”

Applying this principle to the facts, the Court held: “There is no pleading or substantiation of due diligence having not been employed at the time of entrustment… The only suggestion made was a bland assertion that the directors knew the licence was fake.”

There was no evidence on when the driver was employed, whether he was permanent or temporary, or whether the owner had any cause to doubt the licence's authenticity.

Renewed Licence Undermines Claim of Fabrication – Certificate Issued by Transport Authority Not Rebutted

The appellant had produced:

• Driving licence No. 5288 issued by DTO Gurdaspur, and

• Certificate of renewal extending validity from 11.08.1994 to 10.08.1997.

Although the insurance company produced a clerk from the DTO’s office to deny issuance of the licence, the Court noted serious interpolations and discrepancies in the licensing register. The Supreme Court was not impressed:

“The DL register produced from the office of DTO Gurdaspur was full of interpolations... A colour photograph was found with a different name... The High Court found collusion based on the presence of colour photo in a 1990 register, but this has no bearing on the actual entrustment of the vehicle.”

The Court also pointed out that the renewal was not automatic — it had occurred four months after the expiry of the original licence — which suggested formal validation by the transport authority, rather than any attempt at cover-up.

High Court’s ‘Pay and Recover’ Direction Set Aside – Insurer Liable to Bear Compensation Without Right of Recovery

The Supreme Court found that no evidence had been led to show that the insured had committed any deliberate breach of the policy conditions or that there was any collusion in employing an unlicensed driver.

Accordingly, the Court held: “We find absolutely no reason to sustain the order of the High Court, mulcting the liability on the owner of the truck.”

Only the direction allowing the insurer to recover the compensation from the vehicle owner was set aside. The remaining findings of composite negligence and quantum of compensation were left undisturbed.

The appeal was allowed, and the insurer was directed to bear the full liability without any right of recovery.

Date of Decision: 08 October 2025