Apex Court in HDFC Bank Ltd v. Kumari Reshma set aside Madhya Pradesh High Court’s view and held that if a motor vehicle is hypothecated to a finance company and the borrower does not insure it, the claim for compensation must be paid by the latter, and not the financier. In this judgment Supreme Court set aside the view of Madhya Pradesh High Court that, it was the lender who was liable to pay compensation if the borrower does not insure the vehicle and meets with a road accident, raising claims by the victim.
Overruling that view, the Supreme Court asserted that under the provisions of the Motor Vehicles Act, “the person who is in possession of the vehicle under the hypothecation agreement is the owner”, and it would not cover a financier who has entered into a hypothecation agreement with the borrower who is in possession and control of the vehicle.
Actual definition under the Act is read as follows;
“Owner” means a person in whose name a motor vehicle stands registered, and where such person is a minor, the guardian of such minor, and in relation to a motor vehicle which is the subject of a hire-purchase agreement, or an agreement of lease or an agreement of hypothecation, the person in possession of the vehicle under that agreement.”
On a plain reading of the aforesaid definition, it is demonstrable that a person in whose name a motor vehicle stands registered is the owner of the vehicle and, where motor vehicle is the subject of hire-purchase agreement or an agreement of hypothecation, the person in possession of the vehicle under that agreement is the owner. It also stipulates that in case of a minor, the guardian of such a minor shall be treated as the owner. Thus, the intention of the legislature in case of a minor is mandated to treat the guardian of such a minor as the ‘owner’. This is the first exception to the definition of the term ‘owner’. The second exception that has been carved out is that in relation to a motor vehicle, which is the subject of hire-purchase agreement or an agreement of lease or an agreement of hypothecation, the person in possession of vehicle under that agreement is the owner. Be it noted, the legislature has deliberately carved out these exceptions from registered owners thereby making the guardian of a minor liable, and the person in possession of the vehicle under the agreements mentioned in the dictionary clause to be the owners for the purposes of this Act
Earlier Madhya Pradesh High Court relied on the term in the loan agreement that the bank was required to get the vehicle insured if the borrower failed, to or neglected to, get the vehicle insured. However, Supreme Court opined that, though the bank was the registered owner of the vehicle along with the borrower, the latter was “in control and possession of the vehicle”. If he neglects to take insurance and causes injury to a road user as in this case, the borrower is liable to pay compensation.