The Relevance and implications of Certificate of Registration in Motor Insurance
Abstract
The Certificate of Registration is an important document asked for at several junctures right from the issuance of a policy to the settlement of a claim. The research article discusses threadbare its relevance in motor insurance by delving into the provisions of Motor Vehicle Act and Regulations in India and the fundamental requirements of insurance in order to gauge how do these provisions impact the operation of Motor insurance.
The certificate of Registration is one of the most vital documents considered both at the time of underwriting a motor policy as also at the time of settling a motor claims. The interpretation or misinterpretation of this particular document often becomes the bone of contention between an insured and an insurer.
The MV Act, 1988 Provisions: – According to Section 2(4) of MV Act 1988 (corresponding to section 2(2) of the Motor Vehicles Act, 1939), “A certificate of registration” means the certificate issued by a competent authority to the effect that a motor vehicle has been duly registered in accordance with the provisions of Chapter IV. Necessity for Registration. – As required by Section 39 of MV Act 1988, “No person shall drive any motor vehicle and no owner of a motor vehicle shall cause or permit the vehicle to be driven in any public place or in any other place unless the vehicle is registered in accordance with this Chapter and the certificate of registration of the vehicle has not been suspended or cancelled and the vehicle carries a registration mark displayed in the prescribed manner: Provided that nothing in this section shall apply to a motor vehicle in possession of a dealer subject to such conditions as may be prescribed by the Central Government”. It is very clear from Section 39, that it forbids the driving of a motor vehicle in any public place or in any other place without proper registration as laid down in this chapter. However, this particular rule is not applicable to dealers in possession of motor vehicles subject to conditions framed by government from time to time. Section 40 further prescribes that a motor vehicle should be registered by the registering authority in whose jurisdiction the owner of the motor vehicle resides or where the motor vehicle is normally kept. An insurer is often faced with a problem whether he can issue a certificate of insurance /policy without a certificate of registration? Can he pay a claim that often arises when a brand new car just purchased from a show room meets with an accident without a certificate of registration? A close look of Section 41(1) of MV Act, 1988 which deals with how an application of registration is to be made. It clearly states that “an application by or on behalf of the owner of a motor vehicle for registration shall be in such form and shall be accompanied by such documents, particulars and information and shall be made within such period as may be prescribed by the Central Government.” The question that arises here whether the prescribed form for registration needs to be accompanied by an insurance policy or not. The answer is yes as Section 146 MV Act 1988 makes that mandatory. Section 146(1) stipulates that “no person shall use, except as a passenger, or cause or allow any other person to use, a motor vehicle in a public place, unless there is in force in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of this Chapter”. The Certificate of Insurance issued as per the provision of Section 147 (3) of MV Act, 1988, states that “a policy shall be of no effect for the purposes of this Chapter unless and until there is issued by the insurer in favour of the person by whom the policy is effected a certificate of insurance in the prescribed form and containing the prescribed particulars of any condition subject to which the policy is issued and of any other prescribed matters; and different forms, particulars and matters may be prescribed in different cases”. A close perusal of Section 47 Central Motor Vehicle Rules, 1989 reveals how an application for registration of motor vehicles is to be made According to Sec 47(1), an application for registration of a motor vehicle to be made only in the Form 20 to the registering authority concern within a period of seven days from the date of taking delivery of such vehicle. The seven-day deadline shall not include the journey period. The documents needed as per section 47(1) CMV Rules 1989 are (a) sale certificate in Form 21; (b) valid insurance certificate; (c) copy of the proceedings of the State Transport Authority or Transport Commissioner or such other authorities as may be prescribed by the State Government for the purpose of approval of the design in the case of a trailer or a semi-trailer; (d) original sale certificate from the concerned authorities in Form 21 in the case of ex-army vehicles; (e) proof of address by way of any one of the documents referred to in rule 4; (f) temporary registration, if any; (g) road-worthiness certificate in Form 22 from the manufacturers, Form 22-A from the body builders]; (h) custom’s clearance certificate in the case of imported vehicles along with the licence and bond, if any It is evident that a policy of insurance is issued prior to the issuance of Certificate of Registration. The Provision of Temporary Registration According to Section 43(1) of MV Act 1988 , “an owner of a motor vehicle may apply to any registering authority or other prescribed authority to have the vehicle temporarily registered in the prescribed manner and for the issued in the prescribed manner of a temporary certificate of registration and a temporary registration mark”. Section 43(2) mentions very categorically that this temporary registration shall be valid only for a period not exceeding one month, and shall not be renewable. However, a leeway is provided in case of a commercial vehicle – in case of a motor vehicle registered under temporary registration, is a chassis to which a body has not been attached. If the process involved in the attachment of the body exceeds the stipulated period of one month for any unforeseen circumstances not within the control of the owner, the restricted period of one month may be extended on payment of prescribed fees. It may be noted here that no temporary registration is allowed by law where the prospective customers live in the area within the authority of the Registering Authority. Temporary Registration is allowed for customers staying in the area other than the registering authority (away from dealers). Privileges enjoyed by Dealers- Section 33 CMV Rules, 1989, in keeping with section 39, allows certain privileges to dealers in possession of motor vehicles. They are exempted from registration of various vehicles that they possess by obtaining a trade certificate from the registering authority having jurisdiction in the area in which the dealer has his place of business. They need to apply for trade certificates separately for separate class of vehicles. A trade certificate issued or renewed under rule 35 remains in force for a period of twelve months from the date of issue or renewal and remains effective throughout India. Section 42 CMV Rules, 1989, categorically mentions that no holder of a trade certificate shall deliver a motor vehicle to a purchaser without registration, whether temporary or permanent. In other word, it means that all vehicles need to be registered and delivered only after all legal formalities have taken place. The second question that needs to be addressed – whether an insurer can issue of certificate of insurance without the issuance of Certificate of Registration. In simple words on what basis can it issue a policy. If we look at the fundamentals of insurance and implied conditions of an insurance contract, we observe that the parties insured by contract of insurance must have insurable interest in the subject matter. The sale invoice is an evidence that the insured has insurable interest in the subject matter of insurance i.e. the motor vehicle. Once the vehicle is sold, the proprietary of the vehicle automatically gets transferred to the new purchaser. The second requirement maintains that the subject matter insured by the policy must exist at the time the insurance is taken. It is not difficult to establish as the pecuniary interest in the physical vehicle exists once the vehicle is purchased. The third and the most important requirement that the description of the subject matter shown on the policy must be concrete and sufficient to identify by the same beyond any reasonable doubt. The engine no, chassis no, make and model engraved in the vehicle and also mentioned in the sale invoice are good enough to identify the vehicle to be insured from the rest of its genre without reasonable doubts. An insurer can insure a vehicle by way above tests alone and does not require a certificate of Registration for underwriting a policy. Once the registration book is issued, the registration number is incorporated in the policy by way of an endorsement. Let us look at two distinct scenarios: – A brand new car purchased from a show room meets with an accident – it has just got out from the showroom with insurance but without registration. Although Section 42 CMV Rules, 1989, categorically forbids a holder of a trade certificate to deliver a motor vehicle to a purchaser without registration, whether temporary or permanent, the provisions under section 47 of CMV Rules 1989, allows applicant to apply for registration of a motor vehicle before the registering authority within a period of seven days from the date of taking delivery of such vehicle, excluding the period of journey. The dealers take advantage of this exemption and use the leeway of seven days from the date of delivery to apply for registration. What would happen to a motor claim that arises in the interim period when in the first place, an application has been made to a Registering Authority but no certificate of Registration has been issued or in the second place, no application is made at all due to holidays or for some other reasons, although the vehicle has already been sold? As per Section 48 CMV Rules, 1989, which deals with the issue of certificate of registration – the registering authority may take a period 30 days or less on receipt of an application under rule 47 and after verification of the documents furnished with it to issue a certificate of Registration. Therefore, the issuance of certificate of Registration is not spontaneous and takes time. No claim can be denied just because, there is no certificate of registration in the interim period. In any case this is a violation of provisions of MV Act,1988 under section 41(11) which stipulates that if the owner fails to make an application under sub-section (1) of the above section, or, as the case may be, under sub-section (8) within the period prescribed, the registering authority may, having regard to the circumstances of the case, require the owner to pay, in lieu of any action that may be taken against him under section 177, such amount not exceeding one hundred rupees, as may be prescribed under sub-section (13); Provided that action under section. Thus, we find that the provision of MV Act only levies some punitive fine. Take another scenario, a new vehicle was stolen from the garage of the purchaser which was not a public place in any case. Can we deny the claim just because there was no certificate of registration? The answer is no. It may be noted here that mere violations of MV Act provisions in many cases, do not jeopardize an insurance claim. Certain MV Act provision like section 147 has been incorporated in the certificate of insurance to safeguard the interests of victims of road accidents in arising out of accidents. Even cases, involving the violation of Limitation to Use which states that the company shall not be liable under this policy in respect of 3(a) being used otherwise than in accordance with the Limitation As to Use, some claims can be paid by way of a compromise settlement. A close look of condition 8 of Motor policy which states,” The due observance and fulfillment of the terms, conditions and endorsements of this policy in so far as they relate to be done or complied with by the insured and the truth of the statements and answers in the said proposal shall be condition precedent to any liability of the company to make any payments under this policy” makes the above payment possible. The implication of this condition is that it makes all terms, conditions and endorsements condition precedent to liability. It means it only makes that particular claim voidable without affecting other claims or the policy. If the violation is substantially material, the claim is not payable at all but the same lapse is materially insignificant, as matter of good commercial practice, should be paid with compromise settlement without prejudice (without creating a precedent). Authored By:
Prof(Dr.) Abhijit Kumar Chattoraj
Chartered Insurer,
Chairperson -PGDM -IBM -BIMTECH
Dr. Prakash Jadhav
PhD- Deputy RTO –
Mumbai and Visiting Faculty at NIA Pune and III Mumbai
Reference:-
1. THE CENTRAL MOTOR VEHICLES RULES, 1989-http://www.tn.gov.in/sta/Cmvr1989.pdf
2. THE MOTOR VEHICLES ACT, 1988-http://www.tn.gov.in/sta/Mvact1988.pdf
3. Principles of Risk Management and Insurance, 13th Edition; George E. Rejda, Emeritus; University of Nebraska and Michael McNamara, Washington State Universit, ©2017 , Pearson;https://www.pearson.com/us/higher-education/program/Rejda-Principles-of-Risk-Management-and-Insurance-13th-Edition/PGM86481.html
The MV Act, 1988 Provisions: – According to Section 2(4) of MV Act 1988 (corresponding to section 2(2) of the Motor Vehicles Act, 1939), “A certificate of registration” means the certificate issued by a competent authority to the effect that a motor vehicle has been duly registered in accordance with the provisions of Chapter IV. Necessity for Registration. – As required by Section 39 of MV Act 1988, “No person shall drive any motor vehicle and no owner of a motor vehicle shall cause or permit the vehicle to be driven in any public place or in any other place unless the vehicle is registered in accordance with this Chapter and the certificate of registration of the vehicle has not been suspended or cancelled and the vehicle carries a registration mark displayed in the prescribed manner: Provided that nothing in this section shall apply to a motor vehicle in possession of a dealer subject to such conditions as may be prescribed by the Central Government”. It is very clear from Section 39, that it forbids the driving of a motor vehicle in any public place or in any other place without proper registration as laid down in this chapter. However, this particular rule is not applicable to dealers in possession of motor vehicles subject to conditions framed by government from time to time. Section 40 further prescribes that a motor vehicle should be registered by the registering authority in whose jurisdiction the owner of the motor vehicle resides or where the motor vehicle is normally kept. An insurer is often faced with a problem whether he can issue a certificate of insurance /policy without a certificate of registration? Can he pay a claim that often arises when a brand new car just purchased from a show room meets with an accident without a certificate of registration? A close look of Section 41(1) of MV Act, 1988 which deals with how an application of registration is to be made. It clearly states that “an application by or on behalf of the owner of a motor vehicle for registration shall be in such form and shall be accompanied by such documents, particulars and information and shall be made within such period as may be prescribed by the Central Government.” The question that arises here whether the prescribed form for registration needs to be accompanied by an insurance policy or not. The answer is yes as Section 146 MV Act 1988 makes that mandatory. Section 146(1) stipulates that “no person shall use, except as a passenger, or cause or allow any other person to use, a motor vehicle in a public place, unless there is in force in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of this Chapter”. The Certificate of Insurance issued as per the provision of Section 147 (3) of MV Act, 1988, states that “a policy shall be of no effect for the purposes of this Chapter unless and until there is issued by the insurer in favour of the person by whom the policy is effected a certificate of insurance in the prescribed form and containing the prescribed particulars of any condition subject to which the policy is issued and of any other prescribed matters; and different forms, particulars and matters may be prescribed in different cases”. A close perusal of Section 47 Central Motor Vehicle Rules, 1989 reveals how an application for registration of motor vehicles is to be made According to Sec 47(1), an application for registration of a motor vehicle to be made only in the Form 20 to the registering authority concern within a period of seven days from the date of taking delivery of such vehicle. The seven-day deadline shall not include the journey period. The documents needed as per section 47(1) CMV Rules 1989 are (a) sale certificate in Form 21; (b) valid insurance certificate; (c) copy of the proceedings of the State Transport Authority or Transport Commissioner or such other authorities as may be prescribed by the State Government for the purpose of approval of the design in the case of a trailer or a semi-trailer; (d) original sale certificate from the concerned authorities in Form 21 in the case of ex-army vehicles; (e) proof of address by way of any one of the documents referred to in rule 4; (f) temporary registration, if any; (g) road-worthiness certificate in Form 22 from the manufacturers, Form 22-A from the body builders]; (h) custom’s clearance certificate in the case of imported vehicles along with the licence and bond, if any It is evident that a policy of insurance is issued prior to the issuance of Certificate of Registration. The Provision of Temporary Registration According to Section 43(1) of MV Act 1988 , “an owner of a motor vehicle may apply to any registering authority or other prescribed authority to have the vehicle temporarily registered in the prescribed manner and for the issued in the prescribed manner of a temporary certificate of registration and a temporary registration mark”. Section 43(2) mentions very categorically that this temporary registration shall be valid only for a period not exceeding one month, and shall not be renewable. However, a leeway is provided in case of a commercial vehicle – in case of a motor vehicle registered under temporary registration, is a chassis to which a body has not been attached. If the process involved in the attachment of the body exceeds the stipulated period of one month for any unforeseen circumstances not within the control of the owner, the restricted period of one month may be extended on payment of prescribed fees. It may be noted here that no temporary registration is allowed by law where the prospective customers live in the area within the authority of the Registering Authority. Temporary Registration is allowed for customers staying in the area other than the registering authority (away from dealers). Privileges enjoyed by Dealers- Section 33 CMV Rules, 1989, in keeping with section 39, allows certain privileges to dealers in possession of motor vehicles. They are exempted from registration of various vehicles that they possess by obtaining a trade certificate from the registering authority having jurisdiction in the area in which the dealer has his place of business. They need to apply for trade certificates separately for separate class of vehicles. A trade certificate issued or renewed under rule 35 remains in force for a period of twelve months from the date of issue or renewal and remains effective throughout India. Section 42 CMV Rules, 1989, categorically mentions that no holder of a trade certificate shall deliver a motor vehicle to a purchaser without registration, whether temporary or permanent. In other word, it means that all vehicles need to be registered and delivered only after all legal formalities have taken place. The second question that needs to be addressed – whether an insurer can issue of certificate of insurance without the issuance of Certificate of Registration. In simple words on what basis can it issue a policy. If we look at the fundamentals of insurance and implied conditions of an insurance contract, we observe that the parties insured by contract of insurance must have insurable interest in the subject matter. The sale invoice is an evidence that the insured has insurable interest in the subject matter of insurance i.e. the motor vehicle. Once the vehicle is sold, the proprietary of the vehicle automatically gets transferred to the new purchaser. The second requirement maintains that the subject matter insured by the policy must exist at the time the insurance is taken. It is not difficult to establish as the pecuniary interest in the physical vehicle exists once the vehicle is purchased. The third and the most important requirement that the description of the subject matter shown on the policy must be concrete and sufficient to identify by the same beyond any reasonable doubt. The engine no, chassis no, make and model engraved in the vehicle and also mentioned in the sale invoice are good enough to identify the vehicle to be insured from the rest of its genre without reasonable doubts. An insurer can insure a vehicle by way above tests alone and does not require a certificate of Registration for underwriting a policy. Once the registration book is issued, the registration number is incorporated in the policy by way of an endorsement. Let us look at two distinct scenarios: – A brand new car purchased from a show room meets with an accident – it has just got out from the showroom with insurance but without registration. Although Section 42 CMV Rules, 1989, categorically forbids a holder of a trade certificate to deliver a motor vehicle to a purchaser without registration, whether temporary or permanent, the provisions under section 47 of CMV Rules 1989, allows applicant to apply for registration of a motor vehicle before the registering authority within a period of seven days from the date of taking delivery of such vehicle, excluding the period of journey. The dealers take advantage of this exemption and use the leeway of seven days from the date of delivery to apply for registration. What would happen to a motor claim that arises in the interim period when in the first place, an application has been made to a Registering Authority but no certificate of Registration has been issued or in the second place, no application is made at all due to holidays or for some other reasons, although the vehicle has already been sold? As per Section 48 CMV Rules, 1989, which deals with the issue of certificate of registration – the registering authority may take a period 30 days or less on receipt of an application under rule 47 and after verification of the documents furnished with it to issue a certificate of Registration. Therefore, the issuance of certificate of Registration is not spontaneous and takes time. No claim can be denied just because, there is no certificate of registration in the interim period. In any case this is a violation of provisions of MV Act,1988 under section 41(11) which stipulates that if the owner fails to make an application under sub-section (1) of the above section, or, as the case may be, under sub-section (8) within the period prescribed, the registering authority may, having regard to the circumstances of the case, require the owner to pay, in lieu of any action that may be taken against him under section 177, such amount not exceeding one hundred rupees, as may be prescribed under sub-section (13); Provided that action under section. Thus, we find that the provision of MV Act only levies some punitive fine. Take another scenario, a new vehicle was stolen from the garage of the purchaser which was not a public place in any case. Can we deny the claim just because there was no certificate of registration? The answer is no. It may be noted here that mere violations of MV Act provisions in many cases, do not jeopardize an insurance claim. Certain MV Act provision like section 147 has been incorporated in the certificate of insurance to safeguard the interests of victims of road accidents in arising out of accidents. Even cases, involving the violation of Limitation to Use which states that the company shall not be liable under this policy in respect of 3(a) being used otherwise than in accordance with the Limitation As to Use, some claims can be paid by way of a compromise settlement. A close look of condition 8 of Motor policy which states,” The due observance and fulfillment of the terms, conditions and endorsements of this policy in so far as they relate to be done or complied with by the insured and the truth of the statements and answers in the said proposal shall be condition precedent to any liability of the company to make any payments under this policy” makes the above payment possible. The implication of this condition is that it makes all terms, conditions and endorsements condition precedent to liability. It means it only makes that particular claim voidable without affecting other claims or the policy. If the violation is substantially material, the claim is not payable at all but the same lapse is materially insignificant, as matter of good commercial practice, should be paid with compromise settlement without prejudice (without creating a precedent). Authored By:
Prof(Dr.) Abhijit Kumar Chattoraj
Chartered Insurer,
Chairperson -PGDM -IBM -BIMTECH
Dr. Prakash Jadhav
PhD- Deputy RTO –
Mumbai and Visiting Faculty at NIA Pune and III Mumbai
Reference:-
1. THE CENTRAL MOTOR VEHICLES RULES, 1989-http://www.tn.gov.in/sta/Cmvr1989.pdf
2. THE MOTOR VEHICLES ACT, 1988-http://www.tn.gov.in/sta/Mvact1988.pdf
3. Principles of Risk Management and Insurance, 13th Edition; George E. Rejda, Emeritus; University of Nebraska and Michael McNamara, Washington State Universit, ©2017 , Pearson;https://www.pearson.com/us/higher-education/program/Rejda-Principles-of-Risk-Management-and-Insurance-13th-Edition/PGM86481.html 
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