PETITIONER: A.P. POLLUTION CONTROL BOARD Vs. RESPONDENT: PROF.M.V.NAYUDU (<ORG>.) & OTHERS DATE OF JUDGMENT: 27/01/1999 BENCH: S.B. Majmudar. & <NAME>, JUDGMENT:

<NAME>J.

Leave granted in all the special leave petitions. It is said:

"The basic insight of ecology is that all living things exist in interrelated systems; nothing exists in isolation. The world system is weblike; to pluck one strand is to cause all to vibrate; whatever happens to one part has ramifications for all the rest. Our actions are not individual but social; they reverberate throughout the whole ecosystem". [<ORG> by <NAME>, Environmental Ethics: Choices for Concerned Citizens 3-4 (1980)]. (1988) Vol.12 Harv.Env.L.Rev. at 313)."

Four of these appeals which arise out of SLP(C) No.10317-10320 of 1998 were filed against the judgment of <ORG> dated 1.5.1998 in four writ petitions, namely, W.P. No. 17832 of 1997 and three other connected writ petitions. All the appeals were filed by <ORG>. Three of the above writ petitions were filed as public interest cases by certain persons and the fourth writ petition was filed by <ORG> Peddaspur.

The fifth Civil Appeal which arises out of SLP(C) No.13380 of 1998 was filed against the judgment in W.P. No.16969 of 1997 by <ORG>, (for short `<ORG>') represented by <NAME>, the petitioner in the said writ petition. <ORG> dismissed all these writ petitions.

The sixth Civil appeal which arises out of SLP(C) No.10330 of 1998 was filed by <ORG> against the order dated 1.5.1998 in Writ Petition No.11803 of 1998. The said writ petition was filed by <ORG> <ORG> (hereinafter called the `respondent company', for implementation of the directions given by the appellate authority under the Water (Prevention of Pollution) Act , 1974 (hereinafter called the ` Water Act , 1974') in favour of the company.

In other words, <ORG> is the appellant in five appeals and the <ORG> is appellant in one of the appeals.

According to <ORG>, under the notification No. J.20011/15/88-iA, <ORG>, Government of India dated 27.9.1988, `vegetable oils including solved extracted oils' (Item No.37) was listed in the `RED' hazardous category. <ORG> contends that Notification No. J.120012/38/86 1A, <ORG> of Government of India dated 1.2.1989, prohibits the location of the industry of the type proposed to be established by the respondent company, which will fall under categorisation at No.11 same category of industry in Doon Valley.

On 31.3.1994, based on an Interim Report of the Expert Committee constituted by <ORG>, <ORG> issued GOMs 192 dated 31.3.1994 prohibited various types of development within 10 k.m. radius of the two lakes, Himayat Sagar & Osman Sagar, in order to monitor the quality of water in these reservoirs which supply water to the twin cities of Hyderabad and Secunderabad.

In January 1995, the respondent company was incorporated as a public limited company with the object of setting up an industry for production of B.S.S. Castor oil derivatives such as Hydrogenated Castor Oil, 12-Hydroxy Stearic Acid, Dehydrated Castor Oil, Methylated 12-HSA, D.Co., Fatty Acids with by products - like Glycerine, Spent Bleaching Earth and Carbon and Spent Nickel Catalyst. Thereafter the industry applied to <ORG> for letter of intent under the Industries (Development Regulation) Act , 1951.

The respondent Company purchased 12 acres of land on 26.9.1995 in Peddashpur village, Shamshabad Mandal. The Company also applied for consent for establishment of the industry through the single window clearance committee of <ORG>, <ORG>, in November, 1995. On 28.11.1995, the <ORG>, wrote to <ORG>, <ORG> as follows:

"<ORG> recommends the aplication of the unit for grant of letter of intent for the manufacture of B.S.S. Grade Castor Oil in relaxation of locational restriction subject to NOC from <ORG>, prior to taking implementation steps."

On 9.1.1996, <ORG> issued letter of intent for manufacture of B.S.S. grade Castor Oil (15,000 tons per annum) and Glycerine (600 tons per annum). The issuance of licence was subject to various conditions, inter-alia, as follows:

"(a) you shall obtain a confirmation from the State Director of Industries that the site of the project has been approved from the environmental angle by the competent State authority.

(b) you shall obtain a certificate from the concerned <ORG> to the effect that the measures envisaged for pollution control and the equipment proposed to be installed meet their requirements."

Therefore, the respondent company had to obtain NOC from <ORG>.

According to <ORG> (the appellant), the respondent company could not have commenced civil works and construction of its factory, without obtaining the clearance of <ORG> - as the relaxation by government from location restriction as stated in their letter dated 28.11.1995, was subject to such clearance. On 8.3.1996, on receipt of the 2nd Interim Report of the Expert Committee of <ORG>, <ORG> issued GO No.111 on 8.3.1996 reiterating the 10 k.m. prohibition as contained in the GO 192 dated 31.3.1994 but making some concessions in favour of residential development.

In the pre-scrutiny stage on 24.5.1996 by <ORG>, which the company's representative attended, the application of the industry was rejected by <ORG> since the proposed site fell within 10 k.m. and such a location was not permissible as per GOMs 111 dated 8.3.96. On 31.5.1994, <ORG> approved plans for establishing factory.

On 31<ORG>3<ORG>1996, <ORG>, rejected the location and directed alternative site to be selected<ORG> On 7<ORG>9<ORG>1996, the Dt<ORG>Collector granted permission for conversion of the site (i<ORG>e<ORG> within 10 k<ORG>m<ORG>) to be used for non- agricultural purposes<ORG>

On 7.4.1997, the company applied to <ORG>, seeking clearance to set- up the unit under section 25 of the Water Act. It may be noted that in the said application, the Company listed the following as by-products of its processes:

"Glycerine, spent bleaching earth and carbon and spent nickel catalysts."

According to <ORG> the products manufactured by this industry would lead to the following sources of pollution:

"(a) Nickel (solid waste) which is heavy- metal and also a hazardous waste under Hazardous Waste (Management and Handling) Rules, 1989.

(b) There is a potention of discharge or run off from the factory combined joining oil and other waste products.

(c) Emission of Sulpher Dioxide and oxide of nitrogen.

It was at that juncture that the company secured from <ORG> by GOMs 153 dated 3.7.1997 exemption from the operation of GOMs 111 of 8.3.1996 which prescribed the 10 k.m. rule from the Osman Sagar and Himayat Sagar Lakes.

In regard to grant of NOC by <ORG>, the said Board by letter dated 30.7.1997 rejected the application dated 7.4.1997 for consent, stating "(1) The unit is a polluting industry and falls under the red category of polluting industry under section S.No.11 of the classification of industries adopted by <ORG>, <ORG> and opined that it would not be desirable to locate such industry in the catchment area of Himayatsagar in view of the GOMs No.111 dated 8.3.1996.

(2) The proposal to set up this unit was rejected at the pre-scrutiny level during the meeting of <ORG> held on 24.5.1996 in view of the State Government Order No.111 dated 8.3.1996."

Aggrieved by the above letter of rejection, the respondent company appealed under section 28 of the Water Act. Before the appellate authority, the industry, filed an affidavit of Prof. <NAME> <ORG> Officer to <ORG> in support of its contentions. The appellate authority under section 28 of the Water Act, 1974 (Justice <NAME>, (retd.)) by order dated 5.1.1998 allowed the appeal of the <ORG>. Before the appellate authority, as already stated, an affidavit was filed by Prof. <NAME>, a retired scientist and technologist (at that time, <ORG> Advisor for <ORG>) stating that the respondent had adopted the latest eco-friendly technology using all the safeguards regarding pollution. The appellate authority stated that <NAME><NAME>, formerly <ORG> to <ORG> and who acted as Director General, Council of <ORG> and Industrial Research (<ORG>) and who was the Chairman of <ORG> of this <ORG> also filed an affidavit. The Managing Director of the respondent company filed an affidavit explaining the details of the technology employed in the erection of the plant. Prof. <NAME> in his report stated that the company has used the technology obtained from <ORG>), Hyderabad which is a premier institute and that he would not think of a better institute in the country for transfer of technology. The said Institute has issued a certificate that this industry will not discharge any acidic effluents and the solid wastes which are the by -products are saleable and they will be collected in M.S. drums by mechanical process and sold. The report of <NAME> <NAME> also showed that none of the by-products would fall on the ground of the factory premises. He also stated that all the conditions which were proposed to be imposed by <ORG> on the company at its meeting held on 16.7.97 have been complied with. On the basis of these reports, the appellate authority stated that this industry "is not a polluting industry". It further held that the notification dated 1.2.1989 of <ORG>, <ORG>, whereby industries manufacturing Hydrogenated Vegetable oils were categorised as "red category" industries, did not apply to the catchment areas of Himayat Sagar and Osman Sagar lakes and that notification was applicable only to the Doon Valley of UP and Dahanu in Maharashtra. The appellate authority accordingly directed <ORG> to give its consent for establishment of the factory on such conditions the <ORG> may deem fit as per GOMs 153 dated 3.7.1997 (as amended by GO 181 dated 7.8.1997). Before the above order dated 5.1.98 was passed by the appellate authority, some of these public interest cases had already been filed. After the 5.1.98 order of the appellate authority, a direction was sought in the public interest case W.P.No.2215 of 1996 that the order dated 5.1.1998 passed by the appellate authority was arbitrary and contrary to interim orders passed by <ORG> in W.P. 17832, 16969 and 16881 of 1997. The respondent company, in its turn filed WP No.11803 of 1998 for directing the A.P. Pollution Control <ORG> to give its consent, as a consequence to the order of the appellate authority dated 5.1.1998. As stated earlier, the A.P. Pollution Control <ORG> contends that the categorisation of industries into red, green and orange had already been made prior to the notification of 1.2.1989 by Office Memorandum of <ORG>, <ORG> dated 27.9.1988 and that in that notification also "Vegetable oils including solvent extracted oils" (Item No.7) and `Vanaspati Hydrogenated Vegetable oils for industrial purposes (Item 37)" were also included in the red category. It also contends that the company could not have started civil works unless NOC was given by the <ORG>. <ORG> of <ORG> in its judgment dated 1.5.1998, held that the writ petitioners who filed the public interest cases could not be said to be having no locus standi to file the writ petitions. <ORG> observed that while <ORG> of the A.P. Pollution Control <ORG> had, some time before its refusal, suggested certain safeguards to be followed by the company, the <ORG> could not have suddenly refused the consent and that this showed double standards. <ORG> referred to the order of the Appellate authority under Section 28 of the Water Act dated 5.1.98 and the report of <NAME><NAME>, to the effect that even if hazardous waste was a by-product, the same could be controlled if the safeguards mentioned in the Hazardous Wastes (Management and Handling) Rules, 1989 were followed and in particular those in Rules 5,6 and 11, were taken. The Rules made under Manufacture, Storage and Import of Hazardous Chemical (MSIHC) Rules 1989 also permit industrial actively provided the safeguards mentioned therein are taken. The Chemical Accidents (Emergency Planning, Preparedness and Response) Rules 1991 supplement the MSIHC Rules, 1989 on accident preparedness and envisage a 4-tier crisis management system in the country. Therefore, merely because an industry produced hazardous substances, the consent could not be refused. It was stated that as the matter was highly technical, interference was not called for, as "rightly" contended by the learned counsel for the respondent company. <ORG> could not sit in appeal over the order of the appellate authority. For the above reasons, <ORG> dismissed the three public interest cases, and the writ petitions filed by <ORG>. <ORG> allowed the writ petition filed by the respondent industry and directed grant of consent by the A.P. Pollution Control <ORG> subject to such conditions as might be imposed by the <ORG>. It is against the said judgment that the A.P. Pollution Control <ORG> has filed the five appeals. One appeal is filed by <ORG>. In these appeals, we have heard the preliminary submission of <NAME>, learned Additional Solicitor General for the A.P. Pollution Control <ORG>, <NAME>, learned senior counsel for the respondent company, and <NAME> for the appellant in the appeal arising out of SLP (C) No.13380 of 1998 and others. It will be noticed that various issues arise in these appeals concerning the validity of the orders passed by the A.P. Pollution Control <ORG> dated 30.7.97, the correctness of the order dated 5.1.98 of <ORG> under Section 28 of the Water Act, the validity of GOMs No.153 dated 3.7.97 by which <ORG> granted exemption for the operation of the 10 k.m. rule in GOMs 111 dated 8.3.1996. Questions also arise regarding the alleged breach of the provisions of the Act, Rules or notification issued by <ORG> and the standards prescribed under the Water Act or rules or notifications. Question also arises whether the "appellate" authority could have said that as it was a highly technical matter, no interference was called for. We are just now not going into all these aspects but are confining ourselves to the issues on the technological side. In matters regarding industrial pollution and in particular, in relation to the alleged breach of the provisions of the Water (Prevention and Control of Pollution) Act , 1974, its rules or notifications issued thereunder, serious issues involving pollution and related technology have been arising in appeals under Article 136 and in writ petitions under Article 32 of the Constitution of India filed in this <ORG> and also in writ petitions before <ORG> under Article 226. The cases involve the correctness of opinions on technological aspects expressed by the Pollution Control <ORG>s or other bodies whose opinions are placed before the <ORG>s. In such a situation, considerable difficulty is experienced by this <ORG> or <ORG>s in adjudicating upon the correctness of the technological and scientific opinions presented to the <ORG>s or in regard to the efficacy of the technology proposed to be adopted by the industry or in regard to the need for alternative technology or modifications as suggested by the Pollution Control <ORG> or other bodies. The present case illustrates such problems. It has become, therefore, necessary to refer to certain aspects of environmental law already decided by this <ORG> and also to go into the above scientific problems, at some length and find solutions for the same. Environment <ORG>s/Tribunals - problems of complex technology:

The difficulty faced by environmental courts in dealing with highly technological or scientific data appears to be a global phenomenon.

Lord <NAME>, in his <NAME> lecture to <ORG>, on the theme "Are the Judiciary Environmentally Myopic?" (See 1992 J.Envtl. Law Vol.4, No.1, P1) commented upon the problem of increasing specialisation in environmental law and on the difficulty of the <ORG>, in their present form, moving beyond their traditional role of detached "<NAME>" review. He pointed out the need for a <ORG> or <ORG> "having a general responsibility for overseeing and enforcing the safeguards provided for the protection of the environment ....... The <ORG> could be granted a wider discretion to determine its procedure so that it was able to bring to bear its specialist experience of environmental issues in the most effective way"

Lord <NAME> pointed out the need for "a multi- faceted, multi-skilled body which would combine the services provided by existing Courts, <ORG> and Inspectors in the environmental field. It would be a `one stop shop', which should lead to faster, cheaper and the more effective resolution of disputes in the environmental area. It would avoid increasing the load on already over burdened lay institutions by trying to compel them to resolve issues with which they are not designed to deal. It could be a forum in which the Judges could play a different role. A role which enabled them not to examine environmental problems with limited vision. It could however be based on our existing experience, combining the skills of the existing inspectorate, <ORG> and other administrative bodies. It could be an exciting project"

According to Lord <NAME>, "while environmental law is now clearly a permanent feature of the legal scene, it still lacks clear boundaries." It might be `preferable that the boundaries are left to be established by Judicial decision as the law developed. After all, the great strength of the English Law has been its pragmatic approach". Further, where urgent decisions are required, there are often no easy options for preserving the status quo pending the resolution of the dispute. If the project is allowed to go ahead, there may be irreperable damage to the environment; if it is stopped, there may be irreperable damage to an important economic interest. (See Environment Enforcement: The need for a specialised court - by <NAME> (Jour of Planning & Environment, 1992 p.798 at 806). <NAME> advocates the constitution of a unified tribunal with a simple procedure which looks to the need of customers, which takes the form of a <ORG> or an expert panel, the allocation of a procedure adopted to the needs of each case - which would operate at two levels - first tier by a single Judge or technical person and a review by a panel of experts presided over by a High <ORG> Judge - and not limited to `Wednesbury' grounds. In the USA the position is not different. It is accepted that when the adversary process yields conflicting testimony on complicated and unfamiliar issues and the participants cannot fully understand the nature of the dispute, <ORG>s may not be competent to make reasoned and principled decisions. Concern over this problem led <ORG> (1993) and the <ORG> to undertake a study of the problems of science and technology in Judicial decision making. In the introduction to its final report, the <ORG> concluded:

"The <ORG>' ability to handle complex science-rich cases has recently been called into - question, with widespread allegations that the Judicial system is increasingly unable to manage and adjudicate science and technology (S&T) issues. Critics have objected that Judges cannot make appropriate decisions because they lack technical training, that the Jurors do not comprehend the complexity of the evidence they are supposed to analyze, and that the expert witnesses on whom the system relies are merceneries whose biased testimony frequently produces erroneous and inconsistent determinations. If these claims go unanswered, or are not dealt with, confidence in the <ORG> will be undermined as the public becomes convinced that the <ORG> as now constituted are incapable of correctly resolving some of the more pressing legal issues of our day."

The uncertain nature of scientific opinions:

In the environment field, the uncertainity of scientific opinions has created serious problems for the <ORG>. In regard to the different goals of Science and the law in the ascertainment of truth, <ORG> observed in <NAME> vs. <ORG> (1993) 113 S.Ct 2786, as follows:

"......there are important differences between the quest for truth in the Court- room and the quest for truth in the laboratory. Scientific conclusions are subject to perpetual revision. Law, on the other hand, must resolve disputes finally and quickly." It has also been stated by <NAME> in `Uncertainity and Environmental Learning, (2. Global Envtl.Change 111) (1992):

"Uncertainity, resulting from inadequate data, ignorance and indeterminacy, is an inherent part of science."

Uncertainity becomes a problem when scientific knowledge is institutionalised in policy making or used as a basis for decision-making by agencies and courts. Scientists may refine, modify or discard variables or models when more information is available; however, agencies and <ORG> must make choices based on existing scientific knowledge. In addition, agency decision making evidence is generally presented in a scientific form that cannot be easily tested. Therefore, inadequacies in the record due to uncertainity or insufficient knowledge may not be properly considered. (The Status of the Precautionary Principle in Australia : by <NAME> (Vol.22) (1998) (<ORG> Law Review p.509 at pp510-511).

The inadequacies of science result from identification of adverse effects of a hazard and then working backwards to find the causes. Secondly, clinical tests are performed, particularly where toxins are involved, on animals and not on humans, that is to say, are based on animals studies or short-term cell testing. Thirdly conclusions based on epidemiological studies are flawed by the scientist's inability to control or even accurately assess past exposure of the subjects. Moreover, these studies do not permit the scientist to isolate the effects of the substance of concern. The latency period of many carcinogens and other toxins exacerbates problems of later interpretation. The timing between exposure and observable effect creates intolerable delays before regulation occurs. (See Scientific Uncertainity in Protective Environmental Decision making - by <NAME> (Vol.15) 1991 Harv. Envtt. <ORG> p.327 at 333-335).

It is the above uncertainity of science in the environmental context, that has led <ORG> to formulate new legal theories and rules of evidence. We shall presently refer to them.

The Precautionary Principle and the new Burden of Proof - The Vellore Case:

The `uncertainity' of scientific proof and its changing frontiers from time to time has led to great changes in environmental concepts during the period between the Stockholm Conference of 1972 and the Rio Conference of 1992. <CITATION> [1996 (5) SCC 647], a three Judge Bench of this Court referred to these changes, to the `precautionary principle' and the new concept of `burden of proof' in environmental matters. <NAME>, J. after referring to the principles evolved in various international Conferences and to the concept of `Sustainable Development', stated that the Precautionary Principle, the Polluter-Pays Principle and the special concept of Onus of Proof have now emerged and govern the law in our country too, as is clear from Articles 47, 48-A and 51-A(g) of our Constitution and that, in fact, in the various environmental statutes, such as the Water Act , 1974 and other statutes, including the Environment (Protection) Act , 1986, these concepts are already implied. The learned Judge declared that these principles have now become part of our law. The relevant observations in the <NAME> Case in this behalf read as follows:

"In view of the above-mentioned constitutional and statutory provisions we have no hesitation in holding that the Precautionary Principle and the Polluter Pays Principle are part of the environmental law of the country."

The Court observed that even otherwise the above- said principles are accepted as part of the Customary International Law and hence there should be no difficulty in accepting them as part of our domestic law. In fact on the facts of the case before this Court, it was directed that the authority to be appointed under section 3(3) of the Environment (Protection) Act, 1986 "shall implement the `Precautionary Principle' and the `Polluter Pays Principle'."

The learned Judges also observed that the new concept which places the Burden of Proof on the Developer or Industralist who is proposing to alter the status quo, has also become part of our environmental law.

The <NAME> judgment has referred to these principles briefly but, in our view, it is necessary to explain their meaning in more detail, so that Courts and tribunals or environmental authorioties can properly apply the said principles in the matters which come before them.

The Precautionary Principle replaces the Assimilative Capacity Principle:

A basic shift in the approach to environmental protection occured initially between 1972 and 1982. Earlier the Concept was based on the `assimilative capacity' rule as revealed from Principle 6 of the Stockholm Declaration of the U.N.Conference on Human Environment, 1972. The said principle assumed that science could provide policy-makers- with the information and means necessary to avoid encroaching upon the capacity of the environment to assimilate impacts and it presumed that relevant technical expertise would be available when environmental harm was predicted and there would be sufficient time to act in order to avoid such harm. But in the 11th Principle of the U.N. General Assembly Resolution on World Charter for Nature, 1982, the emphasis shifted to the `Precautionary Principle', and this was reiterated in the Rio Conference of 1992 in its Principle 15 which reads as follows:

"Principle 15: In order to protect the environment, the precautionary approach shall be widely applied by States according to their capabilities. Where there are threats of serious or irreversible damage; lack of full scientific certainity shall not be used as a reason for proposing cost-effective measures to prevent environmental degradation."

In regard to the cause for the emergence of this principle, <NAME>, in the article earlier referred to in Vol.22, Harv. Envtt. L.Rev. (1998) p.509 at (p.547) says:

"There is nothing to prevent decision makers from assessing the record and concluding there is inadequate information on which to reach a determination. If it is not possible to make a decision with "some" confidence, then it makes sense to err on the side of caution and prevent activities that may cause serious or irreverable harm. An informed decision can be made at a later stage when additional data is available or resources permit further research. To ensure that greater caution is taken in environmental management, implementation of the principle through <ORG> and legislative means is necessary."

In other words, inadequacies of science is the real basis that has led to the Precautionary Principle of 1982. It is based on the theory that it is better to err on the side of caution and prevent environmental harm which may indeed become irreversible. The principle of precaution involves the anticipation of environmental harm and taking measures to avoid it or to choose the least environmentally harmful activity. It is based on Scientific uncertainity. Environmental protection should not only aim at protecting health, property and economic interest but also protect the environment for its own sake. Precautionary duties must not only be triggered by the suspicion of concrete danger but also by (justified) concern or risk potential. The precautionary principle was recommended by <ORG> (1989). The Bomako Convention also lowered the threshold at which scientific evidence might require action by not referring to "serious" or "irreversible" as adjectives qualifying harm. However, summing up the legal status of the precautionary principle, one commentator characterised the principle as still "evolving" for though it is accepted as part of the international customary law, "the consequences of its application in any potential situation will be influenced by the circumstances of each case". (See * First Report of Dr.<NAME>, Special -Rapporteur, <ORG> dated 3.4.1998 paras 61 to 72). The Special Burden of Proof in Environmental cases: We shall next elaborate the new concept of burden of proof referred to in the <NAME> case at p.658 (1996 (5) SCC 647). In that case, <NAME> J. stated as follows:

"The `onus of proof' is on the actor or the developer/industralist to show that his action is environmentally benign."

--------------------------------------------------- * Joint Secretary and Legal Adviser, <ORG>, New Delhi. It is to be noticed that while the inadequacies of science have led to the `precautionary principle', the said `precautionary principle' in its turn, has led to the special principle of burden of proof in environmental cases where burden as to the absence of injurious effect of the actions proposed, - is placed on those who want to change the status quo (Wynne, Uncertainity and Environmental Learning, 2 Global Envtl. Change 111 (1992) at p.123). This is often termed as a reversal of the burden of proof, because otherwise in environmental cases, those opposing the change would be compelled to shoulder the evidentiary burden, a procedure which is not fair. Therefore, it is necessary that the party attempting to preserve the status quo by maintaining a less- polluted state should not carry the burden of proof and the party who wants to alter it, must bear this burden. (See <NAME>, Shifting the Burden of Proof, 20 Envtl. Law p.891 at 898 (1990)). (Quoted in Vol.22 (1998) Harv. Env.Law Review p.509 at 519, 550). The precautionary principle suggests that where there is an identifiable risk of serious or irreversible harm, including, for example, extinction of species, widespread toxic pollution in major threats to essential ecological processes, it may be appropriate to place the burden of proof on the person or entity proposing the activity that is potentially harmful to the environment. (See Report of Dr.<NAME>, Special Rapporteur, <ORG>, dated 3.4.1998, para 61). It is also explained that if the environmental risks being run by regulatory inaction are in some way "uncertain but non- negligible", then regulatory action is justified. This will lead to the question as to what is the `non-negligible risk'. In such a situation, the burden of proof is to be placed on those attempting to alter the status quo. They are to discharge this burden by showiung the absence of a `reasonable ecological or medical concern'. That is the required standard of proof. The result would be that if insufficient evidence is presented by them to alleviate concern about the level of uncertainity, then the presumption should operate in favour of environmental protection. Such a presumption has been applied in <ORG> vs. <ORG> [1988 (1) NZLR 78]. The required standard now is that the risk of harm to the environment or to human health is to be decided in public interest, according to a `reasonable persons' test. (See Precautionary Principle in Australia by <NAME>) (Vol.22) (1998) Harv. Env. L.Rev. 509 at 549).

Brief Survey of Judicial and technical inputs in environmental appellate authorities/tribunals:

We propose to briefly examine the deficiencies in the Judicial and technical inputs in the appellate system under some of our existing environmental laws. Different statutes in our country relating to environment provide appeals to appellate authorities. But most of them still fall short of a combination of judicial and scientific needs. For example, the qualifications of the persons to be appointed as appellate authorities under section 28 of the Water (Prevention and Control of Polloution) Act, 1974, section 31 of the Air (Prevention and Control of Pollution) Act , 1981, under Rule 12 of the Hazardous Wastes (Management and Handling) Rules, 1989 are not clearly spelled out. While the appellate authority under section 28 in Andhra Pradesh as per the notification of <ORG> is a retired <ORG> Judge and there is nobody on his panel to help him in technical matters, the same authority as per the notification in Delhi is the Financial Commissioner (see notification dated 18.2.1992) resulting in there being in <ORG> neither a regular judicial member nor a technical one. Again, under the National Environmental <ORG> Act, 1995, which has power to award compensation for death or injury to any person (other than workmen), the said <ORG> under section 10 no doubt consists of a Chairman who could be a Judge or retired Judge of the <ORG> or <ORG> and a Technical Member. But section 10(1)(b) read with section 10(2)(b) or (c) permits a Secretary to Government or Additional Secretary who has been a Vice-Chairman for 2 years to be appointed as Chairman. We are citing the above as instances of the grave inadequacies.

Principle of Good Governance : Need for modification of our statutes, rules and notifications by including adequate Judicial & Scientific inputs:

Good Governance is an accepted principle of international and domestic law. It comprises of the rule of law, effective <ORG> institutions, transparency and accountability in public affairs, respect for human rights and the meaningful participation of citizens - (including scientists)

- in the political processes of their countries and in decisions affecting their lives. (Report of the Secretary General on the work of the <ORG>,Official records of <ORG>, 52 session, Suppl. I (A/52/1) (para

22)). It includes the need for the <ORG> to take the necessary `legislative, administrative and other actions' to implement the duty of prevention of environmental harm, as noted in Article 7 of the draft approved by <ORG> of <ORG> in 1996. (See Report of Dr.<NAME>, Special Rapporteur of <ORG> dated 3.4.1998 on `Prevention of transboundary damage from hazardous activities') (paras 103, 104). Of paramount importance, in the establishment of environmental <ORG>, Authorities and Tribunals is the need for providing adequate Judicial and scientific inputs rather than leave complicated disputes regarding environmental pollution to officers drawn only from the <ORG>.

It appears to us from what has been stated earlier that things are not quite satisfactory and there is an urgent need to make appropriate amendments so as to ensure that at all times, the appellate authorities or tribunals consist of <ORG> and also <ORG> personnel well versed in environmental laws. Such defects in the constitution of these bodies can certainly undermine the very purpose of those legislations. We have already referred to the extreme complexity of the scientific or technology issues that arise in environmental matters. Nor, as pointed out by Lord <NAME> and <NAME> should the appellate bodies be restricted to Wednesbury limitations.

<ORG> in Australia, established in 1980, could be the ideal. It is a superior Court of record and is composed of four Judges and nine technical and conciliation assessors. Its jurisdiction combines appeal, judicial review and enforcement functions. Such a composition in our opinion is necessary and ideal in environmental matters.

In fact, such an environmental <ORG> was envisaged by this <ORG> atleast in two judgments. As long back as 1986, <NAME>,CJ in <NAME> vs. <ORG> and Shriram Foods & Fertilizers Case [ 1986 (2) SCC 176 (at page 202)] observed:

"We would also suggest to <ORG> that since cases involving issues of environmental pollution, ecological destructions and conflicts over national resources are increasingly coming up for adjudication and these cases involve assessment and evolution of scientific and technical data, it might be desirable to set up <ORG> on the regional basis with one professional Judge and two experts drawn from <ORG> keeping in view the nature of the case and the expertise required for its adjudication. There would of course be a right of appeal to this Court from the decision of <ORG>."

In other words, this <ORG> not only contemplated a combination of a Judge and Technical Experts but also an appeal to the Supreme <ORG> from the Environmental <ORG>.

Similarly, in the Vellore Case [1996 (5) SCC 647], while criticising the inaction on the part of <ORG> in the appointment of an authority under section 3(3) of the Environment (Protection) Act , 1996. <NAME>, J. observed that <ORG> should constitute an authority under section 3(3) :

"headed by a retired Judge of the High court and it may have other members - preferably with expertise in the field of pollution control and environmental protection - to be appointed by <ORG>."

We have tried to find out the result of the said directions. We have noticed that pursuant to the observations of this Court in Vellore Case, certain notifications have been issued by including a <ORG> Judge in the said authority. In the notification So.671(E) dated 30.9.1996 issued by <ORG> for the State of Tamil Nadu under section 3(3) of the 1986 Act, appointing a `Loss of Ecology (Prevention and Payment of Compensation) authority, it is stated that it shall be manned by a retired <ORG> Judge and other technical members who would frame a scheme or schemes in consultation with <ORG> etc. It could deal with all industries including tanning industries. A similar notification So. 704 E dated 9.10.1996 was issued for <ORG> for the <ORG> including a <ORG> Judge. Notification dated 6.2.1997 (No.88E) under section 3(3) of the 1986 Act dealing with shrimp industry, of course, includes a retired <ORG> Judge and technical persons. As stated earlier, <ORG> should, in our opinion, bring about appropriate amendments in the environmental statutes, Rules and notification to ensure that in all environmental Courts, <ORG> and appellate authorities there is always a Judge of the rank of a <ORG> Judge or a <ORG> Judge, - sitting or retired - and Scientist or group of Scientists of high ranking and experience so as to help a proper and fair adjudication of disputes relating to .pl68 environment and pollution. There is also an immediate need that in all the States and Union Territories, the appellate authorities under section 28 of the Water (Prevention of Pollution) Act, 1974 and section 31 of the Air (Prevention of Pollution) Act, 1981 or other rules there is always a Judge of the <ORG>, sitting or retired and a Scientist or group of Scientists of high ranking and experience, to help in the adjudication of disputes relating to environment and pollution. An amendment to existing notifications under these Acts can be made for the present. There is also need for amending the notifications issued under Rule 12 of the Hazardous Wastes (Management & Handling) Rules, 1989. What we have said applies to all other such Rules or notifications issued either by the <ORG> Government or the State Governments. We request the <ORG> and State Governments to take notice of these recommendations and take appropriate action urgently. We finally come to the appellate authority under the National Environment Appellate Authority Act , 1997. In our view it comes very near to the ideals set by this Court. Under that statute, the appellate authority is to consist of a sitting or retired <ORG> Judge or a sitting or retired Chief Justice of a <ORG> and a Vice-Chairman who has been an administrator of high rank with expertise in technical aspects of problems relating to environment; and .pl65 Technical Members, not exceeding three, who have professional knowledge or practical experience in the areas pertaining to conservation, environmental management, land or planning and development. Appeals to this appellate authority are to be preferred by persons aggrieved by an order granting environmental clearance in the areas in which any industries, operations or processes etc. are to be carried or carried subject to safeguards. As stated above and we reiterate that there is need to see that in the appellate authority under the Water (Prevention of Pollution) Act , 1974, the Air (Prevention of Pollution) Act , and the appellate authority under Rule 12 of the Hazardous Wastes (Management & Handling) Rules, 1989, under the notification issued under section 3(3) of the Environment (Protection) Act, 1986 for National Capital Territory and under section 10 of the National Environment Tribunal Act, 1995 and other appellate bodies, there are invariably Judicial and Technical Members included. This Court has also observed in <NAME> vs. <ORG> and <ORG> Case [ 1986 (2) SCC 176] (at 262) that there should be a right of regular appeal to the <ORG>, i.e. an appeal incorporated in the relevent statutes. This is a matter for the Governments concerned to consider urgently, by appropriate legislation whether plenary or subordinate or by amending the notifications.

The duty of the present generation towards posterity : Principle of Inter-generational Equity: Rights of the Future against the Present:

The principle of Inter-generational equity is of recent origin. The 1972 Stockholm Declaration refers to it in principles 1 and 2. In this context, the environment is viewed more as a resource basis for the survival of the present and future generations. .lm10 .rm55 Principle 1 states:

"Man has the fundamental right to freedom, equality and adequate conditions of life, in an environment of quality that permits a life of dignity and well-being, and he bears a solemn responsibility to protect and improve the environment for present and future generations........"

Principle 2:

"The natural resources of the earth, including the air, water, lands, flora and fauna and especially representative samples of natural ecosystems, must be safeguarded for the benefit of present and future generations through careful planning or management, as appropriate."

Several international conventions and treaties have recognised the above principles and in fact several imaginative proposals have been submitted including -the locus standi of individuals or groups to take out actions as representatives of future generations, or appointing Ombudsman to take care of the rights of the future against the present (proposals of <ORG> referred to by Dr.<NAME>, Special Rapporteur, paras 97, 98 of his report).

Whether <ORG> while dealing with environmental matters under Article 32 or Article 136 or <ORG> under Article 226 can make reference to <ORG> under the 1997 Act for investigation and opinion:

In a large number of matters coming up before this <ORG> either under Article 32 or under Article 136 and also before the High <ORG>s under Article 226 , complex issues relating to environment and pollution, science and technology have been arising and in some cases, this <ORG> has been finding sufficient difficulty in providing adequate solutions to meet the requirements of public interest, environmental protection, elimination of pollution and sustained development. In some cases this <ORG> has been referring matters to professional or technical bodies. The monitoring of a case as it progresses before the professional body and the consideration of objections raised by affected parties to the opinion given by these professional technical bodies have again been creating complex problems. Further these matters sometime require day to day hearing which, having regard to other workload of this <ORG>, (- a factor mentioned by Lord <NAME>) it is not always possible to give urgent decisions. In such a situation, this <ORG> has been feeling the need for an alternative procedure which can be expeditious and scientifically adequate. Question is whether, in such a situation, involving grave public interest, this <ORG> could seek the help of other statutory bodies which have an adequate combination of both Judicial and technical expertise in environmental matters, like <ORG> under the National Environmental Appellate Authority Act, 1997? A similar question arose in <CITATION> [1998 (5) SCALE 219 = 1998 (6) J.T.338], decided by this <ORG> on 10.9.1998. In that case, initially, W.Petitions (Crl.) No.447 and 497 of 1995 were filed under Article 32 of the Constitution of India alleging flagrant violations of human rights in the State of Punjab as disclosed by a <ORG> report submitted to this <ORG>. This <ORG> felt the need to have these allegations investigated by an independent body. This <ORG> then passed an order on 12.12.1996 requesting <ORG> to examine the matter. The said <ORG> is headed by a retired Chief Justice of India and other expert Members. After the matter went before the said <ORG>, various objections were raised as to its jurisdiction. It was also contended that if these issues were to be otherwise inquired into by the <ORG> upon a complaint, they would have stood time barred. These objections were rejected by the <ORG> by an elaborate order on 4.8.1997 holding that once the Supreme <ORG> referred the matters to the <ORG>, it was acting sui Juris, that its services could be utilised by the Supreme <ORG> treating the <ORG> as an instrumentality or agency of the Supreme <ORG>, that the period of limitation under the Protection of Human Rights Act , 1993 would not apply, that in spite of the reference to the <ORG>, the Supreme <ORG> would continue to have seisin of the case and any determination by the <ORG>, wherever necessary or appropriate, would be subject to the approval of the Supreme <ORG>. Not satisfied with the above order of the <ORG>, <ORG> filed clarification application Crl.M.P. No.6674 of 1997 etc. This <ORG> then passed the order aforementioned in <CITATION> [1998 (5) SCALE 219 = 1998 (6) J.T. 332 (SC)] on 12.12.1998 accepting the reasons given by the <ORG> in rejecting the objections. In that context, this <ORG> held that (i) the <ORG> was an expert body consisting of experts in the field (ii) if this <ORG> could exercise certain powers under Article 32 , it could also request the expert body to investigate or look into the allegations, unfettered by any limitations in the Protection of Human Rights Act , 1993, (iii) that by so referring the matters to the <ORG>, this <ORG> was not conferring any new jurisdiction on the <ORG>, and (iv) that the <ORG> would be acting only in aid of this <ORG>. In our view, the above procedure in <CITATION> is equally applicable in the case before us for the following reasons. Environmental concerns arising in this <ORG> under Article 32 or under Article 136 or under Article 226 in the High <ORG>s are, in our view, of equal importance as Human Rights concerns. In fact both are to be traced to Article 21 which deals with fundamental right to life and liberty. While environmental aspects concern `life', human rights aspects concern `liberty'. In our view, in the context of emerging jurisprudence relating to environmental matters, - as it is the case in matters relating to human rights, - it is the duty of this <ORG> to render Justice by taking all aspects into consideration. With a view to ensure that there is neither danger to environment nor to ecology and at the same time ensuring sustainable development, this <ORG> in our view, can refer scientific and technical aspects for investigation and opinion to expert bodies such as <ORG> under the National Environmental Appellate Authority Act, 1997. The said authority comprises of a retired Judge of the Supreme <ORG> and Members having technical expertise in environmental matters whose investigation, analysis of facts and opinion on objections raised by parties, could give adequate help to this <ORG> or the High <ORG>s and also the needed reassurance. Any opinions rendered by the said authority would of course be subject to the approval of this <ORG>. On the analogy of <NAME> Case, such a procedure, in our opinion, is perfectly within the bounds of the law. Such a procedure, in our view, can be adopted in matters arising in this <ORG> under Article 32 or under Article 136 or arising before the High <ORG>s under Article 226 of the Constitution of India.

The order of reference:

After the above view was expressed to counsel on both sides, certain draft issues were prepared for reference. There was some argument that some of the draft issues could not be referred to the <ORG> while some others required modification. After hearing arguments, parties on both sides agreed for reference of the following issues to <ORG> under the National Environmental Appellate Authority Act, 1997.

We shall now set out these issues. They are: (a) Is the respondent industry a hazardous one and what is its pollution potentiality, taking into account, the nature of the product, the effluents and its location?

(b) Whether the operation of the industry is likely to affect the sensitive catchment area resulting in pollution of the Himayat Sagar and Osman Sagar lakes supplying drinking water to the twin cities of Hyderabad and Secunderabad?

We may add that it shall be open to the authority to inspect the premises of the factory, call for documents from the parties or any other body or authority or from <ORG> or <ORG> and to examine witnesses, if need be. The <ORG> shall also have all powers for obtaining data or technical advice as it may deem necessary from any source. It shall give an opportunity to the parties or their counsel to file objections and lead such oral evidence or produce such documentary evidence as they may deem fit and shall also give a hearing to the appellant or its counsel to make submissions.

A question has been raised by the respondent industry that it may be permitted to make trial runs for atleast three months so that the results of pollution, could be monitored and analysed. This was opposed by the appellant and the private respondent. We have not thought it fit to go into this question and we have informed counsel that this issue could also be left to the said <ORG> to decide because we do not know whether any such trial runs would affect the environment or cause pollution. On this aspect also, it shall be open to the authority to take a decision after hearing the parties. Parties have requested that the authority may be required to give its opinion as early as possible. We are of the view that the <ORG> could be requested to give its opinion within a period of three months from the date of receipt of this order. We, therefore, refer the above issues to the above-said Appellate <ORG> for its opinion and request the <ORG> to give its opinion, as far as possible, within the period above-mentioned. If the <ORG> feels any further clarifications or directions are necessary from this <ORG>, it will be open to it to seek such clarifications or directions from this <ORG>. The Company shall make available photo copies of the paper books filed in this <ORG> or other papers filed in the High <ORG> or before the authority under section 28 of the Water Act, 1974, for the use of the Appellate <ORG>. The <ORG> shall communicate a copy of this order to the Appellate <ORG> under the National Environmental Appellate <ORG> Act, 1997. Matter may be listed before us after three months, as part-heard. Ordered accordingly. In the context of recommendations made for amendment of the environmental laws and rules by <ORG> and notifications issued by the <ORG> and State Governments, we direct copies of this judgment to be communicated to the Secretary, Environment & Forests (Government of India), New Delhi, to the Secretaries of Environment & Forests in all State Governments and Union Territories, and to the <ORG> Pollution Control Board, New Delhi. We further direct the <ORG> Pollution Control Board to communicate a copy of this judgment to all <ORG> and other authorities dealing with environment, pollution, ecology and forest and wildlife. The State Governments shall also take steps to communicate this judgment to their respective <ORG> and other authorities dealing with the above subjects - so that appropriate action can be taken expeditiously as indicated in this judgment.


JUDGMENT <NAME>, C.J.

1. This reference to a Full Bench has been made for a decision on the correctness of the <ORG> ruling in <ORG> v. <NAME> [1990] 1 KLT 10. The point in issue is whether in view of the provisions of Section 96(2) and (6) of the Motor Vehicles Act , 1939, it is open to the insurer to rely on a "reservation clause" in the policy and then to raise all the defences open to the insured against the third party, in an action for compensation filed by the third party. The respondents-claimants contend, on the basis of the ruling in <NAME>'s case  1 KLT 10, that, notwithstanding the existence of any "reservation clause" in the policy, it is not permissible for the insurer to either contend that there is no negligence on the part of the insured or that the quantum of compensation awarded against the insured is excessive even when the quantum is within the statutory limits in Section 95(2) . It is true that the ruling in <NAME>'s case  1 KLT 10 supports the respondents' case for saying that in spite of a "reservation clause" the insurer cannot take such defences before the <ORG> or file an appeal against the award raising such pleas. The decision states that Section 96(2) and (6) of the Act permit only certain specific defences to be taken by the insurer and that the said defences are exhaustive. It further says that it is only in the limited class of cases where Section 110C(2A) applies that the insurer can raise defences other than those stated in Section 96(2) . Section 110C(2A) permits the insurer to take all defences when it is impleaded suo motu by the <ORG> upon being satisfied that there is collusion between the claimants and the insured or where the insured is ex parte. The question is whether Section 96(2) and Section 110C(2A) are exhaustive and whether the insurer can, when there is a "reservation clause", raise all pleas available to the insured including pleas of want of negligence of the insured or that the award is excessive.

2. The contention on behaif of the insurer by learned counsel, <NAME>, is that Section 96(2) and Section 96(4) deal with cancellation or avoidance of a contract of insurance, He submits that when an insurer accepts the policy but denies liability under the policy, on the basis of a "reservation clause" in the policy, Section 96(2) and (6) cannot come in the way. It is also argued that Section 110C(2A) is only an enabling provision and that, if there is a "reservation clause" in the policy, the insurer can take all defences open to the insured against the claimants-even if there is no collusion between the insured and the claimants and even if the insured is not ex parte as stated in Section 110C(2A) . It is argued, therefore, that the insured could, in view of the "reservation clause", contend that there is no negligence on the part of the insured or his servants or that the quantum of compensation is on the high side, even though it is within the upper limit mentioned in Section 95(2) .

3. On the other hand, it is contended for the claimants by Sri <NAME>, Sri <NAME>, Sri <NAME> and others that Section 96(2) bars the insurer from raising the above contentions. It is also contended that except in the cases specified in Section 110C(2A) , the insurer cannot raise defences other than those stated in Section 96(2) . Reliance is also placed on Section 96(1) , Section 96(3) and Section 96(4) to say that the insurer is bound to pay the entire award amount and is then to recover excess from the insured. It is also pointed out that in some of these cases before us, extra premium is paid by the insured to make the insurer liable for an "unlimited" sum and, therefore, the appeals have to be dismissed without going into any question of negligence or correctness of the quantum of compensation.

4. On the basis of the above contentions, the following points arise for consideration :

(1) Whether, in a case where the insurance policy contains a reservation clause, the insurer can raise defences, other than those mentioned in Section 96(2) , in its own name ?

(2) Whether, in a case where the insurance policy contains a reservation clause, the insurer can raise all defences, even though the case is not one falling under Section 110C(2A) where there is collusion between the insured and the claimants or one where the insured has remained ex parte ?

(3) Whether, in view of Section 96(1) and 96(3) , the third party claimants could recover the total compensation amount from the insured leaving it to the insurer to recover any excess from the insured ?

(4) Whether, in a case where, on account of extra premium paid by the insured to the insurer so as to make the insurer's liability "unlimited" and not confined to the limits in Section 95(2) , the third party could claim the benefit of the unlimited liability as against the insurer directly under Section 96(1) read with Section 96(4) and Section 110B ?

Point No. 1.--Before going into the point, it would be convenient to refer to the so-called "reservation clause". We may point out that the clause does not use the word "reserved". In insurance parlance, it is actually called an "excess clause" (see <ORG>, 1984. 4th edition, page 289). The clause which is relied upon by the appellant-insurer is condition 2 of the policy of the insurance and reads as follows :

"No admission, offer, promise, payment or indemnity shall be made or given by or on behalf of the insured without the written consent of the company which shall be entitled, if it so desires, to take over and conduct in the name of the insured, the defence or settlement of any claim or to prosecute in the name of the insured for its own benefit, any claim for indemnity or damages or otherwise and shall have full discretion in the conduct of any proceedings or in the settlement of any claim and the insured shall give all such information and assistance as the company may require."

5. As the question is whether the above clause can be operated upon by the insurer in the presence of Section 96(2) and 96(4) , it is also necessary to refer to these statutory provisions, to the extent relevant. As Section 96(1) is the only provision which creates a direct right to the claimants against the insurer and is referred to in Section 96(2) , it is also necessary to refer to the said sub-clause.

"96(1). If, after a certificate of insurance has been issued under Sub-section (4) of Section 95 in favour of the person by whom a policy has been effected, judgment in respect of any such liability as is required to be covered by a policy under Clause (b) of Sub-section (1) of Section 95 (being a liability covered by the terms of the policy) is obtained against any person insured by the policy, then, nolwithstanding that the insurer may be entitled to avoid or cancel or may have avoided or cancelled the policy, the insurer shall, subject to the provisions of this section, pay to the person entitled to the benefit of the decree, any sum. not exceeding the sum assured, payable thereunder, as if he were the judgment-debtor, in respect of the liability, together with any amount payable in respect of costs and any sum payable in respect of interest on that sum by virtue of any enactment relating to interest on judgments."

6. The above provision in Section 96(1) thus directly creates a right in favour of the claimants against the insurer to recover the amount of such liability as is required to be covered by a policy under Section 95(1)(b) . We have held in another Full Bench case in M. F. A. No. 298 of 1987 <CITATION>  77 Comp Cas 134 (Ker) [FBI that inasmuch as Section 95(lKb) , in its turn, refers to Section 95(2)(b) , the insurer is liable only up to the limits in Section 95(2) and not for the entire award as passed against the insured. We shall now refer to Section 96(2) and (6).

"96(2). No sum shall be payable by an insurer under Sub-section (1) in respect of any judgment unless before or after the commencement of the proceedings in which the judgment is given, the insurer had notice through the court of the bringing of the proceedings or in respect of any judgment so long as execution is stayed thereon pending an appeal ; and an insurer to whom notice of the bringing of any such proceeding is so given, shall be entitled to be made a party thereto and to defend the action on any of the following grounds, namely :--

(a) that the policy was cancelled by mutual consent or by virtue of any provision contained therein before the accident.. . and that either the certificate of insurance was surrendered to the insurer ... or that either before or not later than fourteen days after the happening of the accident the insurer has commenced proceedings for cancellation . . .

(b) that there has been a breach of a specified condition of the policy, being one of the following conditions . . .

(c) that the policy is void on the ground that it was obtained by the non-disclosure of a material fact or by a representation of fact which was false in some material particular."

7. Section 96(6) which limits the defences for avoidance of the policy to the defences mentioned in Section 96(2) , reads as follows :

"96(6). No insurer to whom the notice referred to in Sub-section (2)... has been given, shall be entitled to avoid his liability to any person entitled to the benefit of any such judgment as is referred to in Sub-section (1). . .. otherwise than in the manner provided for in Sub-section (2) . . ."

8. As already stated, the point is whether the "reservation clause" in the policy in any manner conflicts with Section 96(2) and 96(4) so as to become ineffective. Before we go into the above aspect, we shall point out that such a clause, which is called an "excess clause", is a well-known clause in the law of insurance. It fell for consideration in <ORG> v. <NAME> (1939] 4 All ER 204 before <ORG>. There the insured while driving a motor vehicle dashed against a pedal cyclist sometime before March, 1939, and injured the latter. The pedal cyclist sued for damages. The insurer, by reason of the reservation clause, entered into a settlement out of court with the pedal cyclist and paid him 45 and claimed 5 from the insured, as provided in the policy. Then the insured refused to pay 5 as agreed by him in the policy. As he refused to pay, the insurer filed an action against the insured for 5. The insured contended that the insurer had no right to settle the matter with the claimants without notice to him (the insured) and also that the settlement was not bona fide. The said contention was rejected. We shall refer to the relevant clauses in that policy. They are as follows (at p. 205) :

"The company . . . shall be entitled if it so desires, to take over and conduct in the name of the insured the defence or settlement of any claim or to prosecute in the name of the insured for its own benefit any claim for indemnity or damages or otherwise and shall have full discretion in the conduct of any proceedings or in the settlement of any claim and the insured shall give all such information and assistance as the company may require."

9. Another condition stated that the insured was "liable to pay the first 5 or any less amount for which the claim may be settled of each claim arising under this policy."

10. It was held by <ORG> that the insurer was entitled to settle the claim with the claimant and that the settlement was bona fide and the insured had no right to be consulted before settlement. <NAME> observed (at p. 206) :

"Once it is conceded, or once it is found, that the insurance company have the power to settle the claim, then the event which is contemplated in this provision has arisen. There has been a settlement, and thereupon the assured has agreed, it is declared, that he is liable to pay the first 5 for which the claim may be settled. That seems to me to conclude the matter."

11. The significance of the above decision which related to an accident that occurred just before March, 1939, is that, by that time, the Road Traffic Act, 1934, had come into force with effect from July 31, 1934, and Section 10(2) and (3) of that Act had directed that certain limited defences as specified in Section 10(2) and (3) alone could be taken by the insurer in an action by the claimants. No contention was raised that Section 10(2) and (3) were a bar to the defence that the insurance company was entitled to enter into a settlement in view of the reservation clause.

12. The provisions of Section 96(2) and (6) fell for consideration in two decisions of <ORG>. In British India Genera! <CITATION>  29 Comp Cas (Ins) 60 ; AIR 1959 SC 1331, <ORG> held that the defences referred to in Section 96(2) which an insurance company could take, were exhaustive and no more defences could be added thereto, unless such a right was reserved. The passage reads thus (at page 66 of 29 Comp Cas) :

"The statute (Motor Vehicles Act , 1939) has no doubt created a liability in the insurer to the injured person but the statute has also expressly confined the right to avoid that liability to certain grounds specified in it. It is not for us to add to those grounds, and, therefore, to the statute for reasons of hardship. We are furthermore not convinced that the statute causes any hardship. First, the insurer has the right, provided he has reserved it by the policy, to defend the action in the name of the assured and if he does so, all defences open to the assured can then be urged by him ..."

13. The above decision is a clear authority that it is open to the insurer to reserve a right in the policy of insurance to defend the action in the name of the assured and, in case there is such a reservation, all defences open to the assured can be urged by him. The above decision is binding on us and has been, in fact, followed by various <ORG>.

14. <CITATION>  63 Comp Cas 847 ; AIR 1988 SC 719, their Lordships referred to <NAME> case  29 Comp Cas (Ins) 60 (SC) but distinguished the same. There the contention for the claimants was that the insurance company cannot file an appeal for restricting its liability to the pecuniary limits mentioned in Section 95(2) of the Act. The contention was that the same was not one of the defences mentioned in Section 96(2) of the Act. <ORG> rejected the said contention and held that Section 96(2) which restricted the insurer to a limited number of defences applied only if the insurance policy was to be either "cancelled" as in Section 96(2)(a) or if it was to be totally "avoided" on the ground of misrepresentation or suppression of material facts as in Section 96(2)(c) or where as in Section 96(2)(b) , the insured had committed a breach of certain specified conditions of the policy thereby giving a right to the insurer to "avoid" the policy. It was held by their Lordships that when an insurer wanted to file an appeal contending that it could not be made liable for anything beyond the "liability required to be covered under Section 95(1)(b) ", such a plea could not be described as a plea to "avoid" the policy itself in toto within Section 96(6) .

15. That <NAME> case [1959] 29 Comp Cas (Ins.) 60 (SC) permits the insurer to "reserve" his right to defend the case on grounds available to the owner as stated above, has been rightly accepted and followed by this court earlier in <ORG> v. <NAME> [1989] 66 Comp Cas 818, and in <CITATION>  58 Comp Cas 746 and also in <CITATION>  67 Comp Cas 528. We are of the view that the decision to the contrary in <CITATION>  1 KIT 10, is not correct and it is accordingly overruled.

16. The view we have taken, following <NAME> case [1959] 29 Comp Cas (Ins.) 60 (SC), is in accord with the view taken in regard to the effect of the "reservation clause" by the Madras High Court in <CITATION> (1974] AC) 234 ; AIR 1974 Mad 318, <ORG> in <CITATION>  ACJ 11 (Delhi), <ORG> in Mangdal v. <NAME>  ACJ 86 (MP) (FBI, <ORG> in Orissa Co-operative Insurance Society Ltd. v. <NAME>  ACJ 49 (Orissa) and <ORG> in <CITATION>  ACJ 470 (J & K) [FB], We may point out that a Full Bench of <ORG> in <CITATION>  ACJ 239 ; AIR 1976 Orissa 175 [FB], has also, in principle, taken the same view as regards the effect of a reservation clause but in the end it did not allow the insurer to raise the defence, on facts, on the ground that the insurer did not choose to defend the action in the name of the insurer.

17. We may add that we are not in agreement with the latter point of view so expressed by <ORG> in the last mentioned Full Bench case in <CITATION>  ACJ 239 (Orissa) [FB], that the reservation clause would help the insurer to raise all defences against third parties which could have been raised by the insured only in case the insurer expressly defended the action in the name of the insured. That leads us to the question as to what the rights of the insurer are, in the case of "assignment" by the insured, in favour of the insurer, in respect of the former's rights against third parties. For the purpose of deciding this question it is necessary to refer to the general law relating to insurance. Under that law, a distinction has been made between the cases where the insurer obtains assignment from the insured, and cases where the insurer becomes subrogated to the rights of the insured by way of paying the amount due to the insured. It is settled in the law of insurance that the insurer can avail of all the defences and grounds or remedies which the insured then has against third parties. The only difference is that in the case of assignment the insurer can take action in his own name, while in the case of subrogation, the insurer has to take action only in the name of the insured. In <ORG>, 4th edition, volume 25, paragraphs 523 to 527, it is stated that the doctrine of subrogation applies to all contracts of non-marine insurance which are contracts of indemnity, sych as fire insurance, motor insurance and contingency insurance. It is further stated that in the strict sense of the term, subrogation expresses the right of the insurers to be placed in the place of the assured so as to be entitled to the advantage of all rights and remedies which the assured possesses against third parties, and that the most obvious case of subrogation arises in the law of torts. It is further stated that if an owner of a vehicle incurs third party liability, consequent to negligence of the owner's servants, then the insurer who discharges the liability of the insured gets subrogated to the rights of the insured against third parties : <NAME> v. <ORG>  AC 555 (HL). In the absence of a formal assignment of the rights of action, as stated in <CITATION> .  AC 250 (PC), the insurers cannot sue the third parties in their own name. <ORG> v. <ORG>  3 Doug KB 245. That is what is stated in <ORG>.

18. The law is also similarly stated in MacGillivray on Insurance Law, fourth edition, 1953, paragraph 1686 (accepted in later editions also) as follows:

"The legal right to compensation remains in the assured <CITATION> .  AC 250 ; Crandall v. <NAME>  16 Fed. Rep 75, and, therefore, unless there has been an express assignment of the legal right, actions at law brought for the benefit of the insurer are brought in the name of the assured <ORG> v. <NAME>  3 Doug KB 245 ; Wealkans v. <ORG>Ont A. R. 297 ; <ORG> v. <NAME>  39 MC 253. In Courts of Equity or of Admiralty, the insurer has always been allowed to sue in his own name St. Louis Rly v. <ORG>  139 US 223 ; <ORG> v. <ORG>  129 US 397 ; and <NAME> v. <ORG>  19 How US 312."

19. The decision in <CITATION> .  AC 250 (PC), above referred to in fact decided that when there was assignment by the <ORG> in favour of the insurer in respect of the <ORG>'s rights against third parties, the insurer can sue the third parties in his own name, and avail of all the defences and remedies of the <ORG> against the third parties.

20. The above principle laid down in English law has been accepted by various <ORG> in India. The principle has been accepted recently by <ORG> in a motor insurance case in <CITATION> . [1958-65] ACJ 527 ; AIR 1965 Mad 159. That was a case where the insured had assigned his rights (as against third party) in favour of the insurer, and the insurer was held entitled to sue the third party in his own name. In the above said decision, <ORG> followed an earlier ruling of the same <ORG> in <NAME> v. <NAME>, AIR 1916 Mad 473, and also the decision of the Calcutta <ORG> in <CITATION> .  66 CWN 419. It was further held in <NAME> case, AIR 1965 Mad 159 that such an assignment by the insured in favour of the insurer in respect of the rights covered by the motor insurance policy was not hit by Section 6(e) of the Transfer of Property Act, and that the assignment was valid as a transfer of a chose in action as defined in Section 130 of the Transfer of Property Act. In the other cases, the Madras and Calcutta <ORG> also held that Section 6(e) of the Transfer of Property Act was not attracted to cases of assignment of rights by an assured in favour of the insurer. The decision of <ORG> in <NAME> case, AIR 1965 Mad 159, has been followed by the Karnataka <ORG> in <CITATION> .  2 Kar LJ 521.

21. In the light of the above principles of law, it is, therefore, clear that the insurance company has a right to defend or take action against the third party in its own name, on the basis of the assignment by the insured in favour of the insurer in respect of the former's rights against third parties. It is not necessary in the case of assignment that the action by the insurer should be in the name of the insured.

22. The further question that arises is as to the meaning of the words in the reservation or assignment clause in question. We have already referred to the said clause, but we shall again refer to the relevant portion thereof. It reads :

"No admission, offer, promise, payment or indemnity shall be made or given by or on behalf of the insured without the written consent of the company which shall be entitled, if it so desires, to take over and conduct in the name of the insured, the defence or settlement of any claim . . ."

23. We have already noticed that in the case of assignment of rights by the insured in favour of the insurer the insurer has a right to conduct the proceedings in its own name. Therefore, we have to understand the relevant words in the above said reservation clause in the light of the said principle. In our view, the words "if it so desires", gain considerable importance in such a context. In our view, the insurer is given a choice "if it so desired" to conduct the proceedings in the name of the insured. But this does not mean that the insurer is precluded from defending or prosecuting the proceedings in his own name, and there are no words in the reservation clause which take away such a right in favour of the insurer which is available under the general law of insurance.

24. For the aforesaid reasons, we hold that the appellant-insurance company can take advantage of the "reservation clause" which is in the nature of assignment by the insured of his rights against the third party, and the insurer can defend any action filed by the third party by conducting the same in its own name (insurer). In such a case, the insurer can raise all defences which the insured could have raised, and obviously the insurer is not confined to the limited defences mentioned in Section 96(2) of the Motor Vehicles Act. Therefore, when there is a reservation or assignment clause as stated above, the insurer can even take a defence that there is no negligence on the part of the insured or that the quantum of compensation awarded to the third party is excessive, even when the said quantum is below the pecuniary limit mentioned in Section 95(2) of the Motor Vehicles Act. We hold accordingly on point No. 1.

Point No. 2-- It is the contention of the respondents-claimants that Section 110C(2A) of the Motor Vehicles Act, 1939, introduced by the Central Act 56 of 1969 with effect from March 2, 1970, leads to the inference that the insurer can raise all defences open to the insured against the third party, only in a case where the <ORG> has chosen to implead the insurer upon being satisfied that there is collusion between the insured and the third parly or where the insured has remained ex parte. The contention is that if the said situations are not in existence, the insurer cannot raise any defences other than those specified in Section 96(2) .

25. For the purpose of understanding the above contention, it is necessary to refer to Section 110C(2A) . It reads :

"110C(2A). Where in the course of any inquiry, <ORG> is satisfied that-

(i) there is collusion between the person making the claim and the person against whom the claim is made, or

(ii) the person against whom the claim is made has failed to contest the claim, it may, for reasons to be recorded by it in writing, direct that the insurer who may be liable in respect of such claim, shall be impleaded as a party to the proceeding and the insurer so impleaded shall thereupon have the right to contest the claim on all or any of the grounds that are available to the person against whom the claim has been made." (emphasis* supplied)

26. We have already held on point No. 1 that in view of the reservation or assignment clause, the insurer is vested with all the defences or grounds of the insured against the third party, and can take action in his own name. Therefore, prima facie, Section 110C(2A) cannot come in the way of the exercise of the rights under the reservation clause by the insurer.

27. Even otherwise, Section 110C(2A) which deals with the "procedure" before the <ORG>, can only be treated as an enabling provision. In our view, it does not exhaust all the situations in which the insurer can raise defences open to the insured against the third party. The provisions of Section 110C(2A) may, however, govern a case where there is no reservation clause or assignment of the rights of the insured in favour of the insurer, but otherwise, it cannot help the respondents. We hold, therefore, that even if there is no collusion between the insured and the third party or even if the insured has not remained ex parte the insurer can raise all defences open to the insured against the third party, provided there is a reservation or assignment clause by the insured in favour of the insurer. For the aforesaid reasons also we overrule the decision in <CITATION>  1 KLT 10. Point No. 2 is found accordingly.

Point No. 3.--This point concerns Section 96(3) . We shall refer to the said provision. It reads as follows :

"96(3). Where a certificate of insurance has been issued under Sub-section (4) of Section 95 to the person by whom a policy has been effected, so much of the policy as purports to restrict the insurance of the persons insured thereby by reference to any conditions other than those in Clause (b) of Sub-section (2) shall, as respects such liabilities as are required to be covered by a policy under Clause (b) of Sub-section (1) of Section 95 , be of no effect :

Provided that any sum paid by the insurer in or towards the discharge of any, liability of any person which is covered by the policy by virtue only of this sub-section shall be recoverable by the insurer from that person."

28. Section 96(3) states that if there is any restriction in the insurance policy which purports to restrict the insurance of the persons insured, because of incorporation of any conditions other than those in Section 96(2)(b) , then such conditions will be of no effect, for the purpose of making the insurer discharge its liabilities as are required to be covered by a policy under Section 95(1)(b) . We should first know what the restrictions under Section 96(2)(b) are, the violation of which by the insured, permits the insurer to avoid the policy. Under Section 96(2)(b) , the insurer can avoid the policy for breach (by the insured) of (i) a condition that the insured should not use the vehicle (a) for hire or reward, where the vehicle is, on the date of the contract of insurance, a vehicle not covered by a permit to ply for hire or reward ; or (b) for organised racing or speed-testing ; or (c) for a purpose not allowed by the permit under which the vehicle is used, where the vehicle is a transport vehicle ; or (d) without side car being attached, where the vehicle is a motor cycle ; (ii) a condition excluding driving by a named person or unlicensed drivers, etc., (iii) a condition excluding liability for injury caused or contributed to by conditions of war, civil war, riot or civil commotion. Therefore, under Section 96(3) if the policy permits avoidance of the insurer's liability under Section 95(1)(b) on the basis of conditions other than the above ones specified in Section 96(2)(b) , such conditions will be of no effect as against the third party.

29. So far as the proviso to Section 96(3) is concerned, it states that if on account of the above disability statutorily incurred by the insured in not being able to enforce the conditions other than those in Section 96(2)(b) as against the third parties, the insurer becomes liable to pay to the third party any excess sum which, but for the said statutory disability, it was not obliged to pay, then such excess sum could be recovered by the insurer from the insured.

30. We fail to see how Section 96(3) can be of any help to the respondents-claimants against the insurer. If the insurer takes out a defence under the law of torts that the insured has not been negligent or if the insurer contends that the quantum of compensation awarded is high (though it is within Section 95(2) limits)--then such defences are permissible in view of the reservation clause and in view of our decision on Point No. 1, and it cannot be said that the insurer is raising defences not covered by Section 96(2)(b) , nor that the said defences are of no effect. The raising of the above defences by the insurer in the written statement or in the appeal-as permitted by the reservation clause--does not, in our view, amount to imposing conditions other than the permissible conditions specified in Section 96(2)(b) so as to become ineffective by reason of Section 96(3) .

31. The further contention based on the proviso to Section 96(3) that the insurance company must first pay the compensation in full cannot also be accepted inasmuch as raising defences in the written statement or in the appeal on the basis of the reservation clause--cannot be treated as imposing extra conditions (outside Section 96(2)(b) ) which are ineffective. Point No. 3 is decided accordingly.

32. Point No. 4.--It is not disputed by the appellant's counsel that in some of these cases, the insured has paid extra premium to make the insurer's liability an unlimited liability. But the question then arises whether the insurer is liable to pay the entire assessed liability over and above its statutory liability under Section 95(2) and whether the insurer is to recover the excess amount over and above such statutory liability, from the insured, in view of Section 96(4) of the Act. Section 96(4) reads as follows :

"96(4). If the amount which an insurer becomes liable under this Section to pay in respect of a liability incurred by a person insured by a policy exceeds the amount for which the insurer would apart from the provisions of this section be liable under the policy in respect of that liability, the insurer shall be entitled to recover the excess from that person."

33. The provisions of Section 96(4) fell for consideration in M. F. A. No. 298 of 1987 before this very Full Bench ( <CITATION>  77 Comp Cas 134). In that case, the insurer filed an appeal contending that the <ORG> was wrong in making it liable for the entire amount payable by the insured, but that its liability should have been limited to the figure specified in Section 95(2) . It was, no doubt, not a case of extra premium. It was contended for the claimants that in view of Section 96(4) , the insurer should pay the entire amount and recover the difference from the insured. We rejected the said contention in that case. We referred to the relevant rulings of <ORG> in <ORG> v. A. E. Ranasinghe  AC 541 (PC), the majority decision of <ORG>, <NAME> v. <ORG>  2 Lloyd's Rep 193 and to the judgment of <ORG> in the appeal from that case, viz., <NAME> v. <ORG>  1 Lloyd's Rep 556 (PC). In all these cases, the provisions were similar to Section 96(4) . We held that the words "the amount which an insurer becomes liable under the section" in Section 96(4) meant the liability to the third party covered by Section 96(1) , namely, the statutory liability under Section 95(1)(b) , as further limited by the pecuniary limits in Section 95(2) . It was held that Section 96(4) only meant that in a case where the insurer avoided the policy on grounds stated in Section 96(2) , the insurer could then recover from the insured under Section 96(4) the compensation paid by the insurer to the third party in its entirety. That would be a case of "excess" over "nil", as pointed out by Lord <NAME> in <NAME>'s case  1 Lloyd's Rep 556 (PC). Again, in a case where the policy, was not avoided, but the insurer paid the actual amount mentioned in Section 95(2) and interest and costs to the third party, Section 96(4) could mean that the insurer could recover from the insured, if he wanted to do so, the interest and costs, that being the sum not payable if Section 96(1) did not apply. We held that the basic principle was that the right of the third party against the insurer was limited always to the liability covered by Section 95(1)(b) and Section 95(2) in view of Section 96(1) .

34. In the present case, a further question arises. Here, in view of the extra premium paid by the insured, the insurer's liability to the insured is unlimited. In other words, it is more than the statutory limits prescribed in Section 95(2) . But the point is whether the third party claimant could seek the benefit of the extra premium and claim for the entire award amount, over and above the statutory limits specified in Section 95(2) , from the insurer ?

35. In abstract principle, in view of Section 96(1) , it must be held that the third party cannot have a remedy against the insurer for anything above the limits specified in Section 96(1) , which means, the "amount as is required to be covered by Section 95(1)(b) ". Section 95(1)(b) , in its turn, refers to Section 95(2) . Thus the third party's rights against the insurer cannot, in the abstract, exceed Section 95(2) limits. The fact that the insured had paid extra premium might help the insured to resort to his remedies against the insurer for the amount recovered from the insured, apart from what is recovered from the insurer by the third party. In fact, this very question relating to additional premium arose before <ORG> as an additional point in <NAME> v. <NAME>  2 <ORG> (PC). That case arose under the Bermudan Motor Car Insurance (Third Party Risks) Act, 1943. Section 6(1) of that Act corresponds to Section 96(1) of our Act, while Section 6(4) corresponds to Section 96(4) of our Act. They read as follows :

"6(1). If, after a certificate of insurance has been delivered under Sub-section (4) of Section 4 to the persons by whom a policy has been effected, judgment in respect of any such liability as is required to be covered by a policy under paragraph (b) of Sub-section (1) of Section 4 (being a liability covered by the terms of the policy) . . .

6(4). If the amount which an insurer becomes liable under this section to pay in. respect of a liability of a person insured by a policy exceeds the amount for which he would, apart from the provisions of this section, be liable under the policy in respect of that liability, he shall be entitled to recover the excess from that person." (emphasis* supplied)

36. In that case, the respondent was injured by the negligent driving of Mr. <NAME>. The car was owned by Mrs. <NAME> and was insured with the appellants under a policy. The respondent claimed damages for personal injuries against Mr. <NAME>, for $ 100,000 and costs by consent. The respondent-claimant wanted that the entire sum be paid by the insurer-appellant even though by virtue of the provisions of the Act of 1943, the statutory liability was restricted to $ 24,000. <ORG> at Bermuda held the appellant liable for the whole amount. Allowing the appeal, their Lordships held the appellant liable only to an extent of $ 24,000. Section 3(1) of the Act is similar to Section 94 , while Section 4(1) is similar to Section 95(1)(b) . The proviso to Section 4(1) corresponds to Section 95(2) limiting the liability of the insurance company to $ 24,000 and to other amounts in various situations. Again, Section 6(1) of the Act corresponds to Section 96(1) while Section 6(4) corresponds to Section 96(4) . Their Lordships followed the decision in <NAME>'s case  1 Lloyd's Rep 556 (HL) and <ORG>'s case  AC 541 (PC). The contention that <ORG>'s case  1 Lloyd's Rep 556 (PC) was wrongly decided and that the view of Lord <NAME>, M. R. in <ORG> in <NAME>'s case  2 Lloyd's Rep 193 was correct, was rejected.

37. A further point was also argued that in <NAME> case [1989] 2 Lloyd's Rep 227 the policy there covered $125,000 while the statutory liability of the insurance company was only $24,000, and the award is for $ 100,000 and that <NAME>'s case [1980] 1 Lloyd's Rep 556 (PC) was distinguishable. But Lord <NAME> of Kinkel observed :

"It is true that <NAME>'s case [1980] 1 Lloyd's Rep 556 (PC) was in certain respects different in its facts from the present one. But the reasoning of Lord <NAME> may nevertheless be applicable. That reasoning indicates that so far as the 1943 Act is concerned, the words in Section 6(1) -

'... such liability as is required to be covered by a policy under paragraph (b) of Sub-section (1) of Section 4 . . .' do not include liability in respect of any sum in excess of $ 24,000 arising out of any one claim by any one person, since by virtue of proviso (iii) to Section 4(1)(b) , such a liability is not required to be covered. It is, in their Lordship's opinion, nothing to the point, so far as the construction of Section 6 is concerned, that the insurers might under the terms of the policy be bound to indemnify the insured in respect of any excess over the statutory minimum for which an injured third party might have obtained judgment against the insured. The effect of Section 6(1) is to limit the amount which the injured third party can recover directly from the insurers."

38. Therefore, going strictly by the legal principles above stated, the third party cannot by resorting to Section 96(1) seek to recover from the insurer any amount over and above the statutory limits specified in Section 95(2) even though, as between the insurer and the insured, the limit of liability of the insured is unlimited.

39. But, in practice, in our country, the nationalised insurance companies have been paying directly to the third party, the amount up to the limit covered by the extra premium, even though the limit under Section 95(2) may be less. We do not want to disturb the existing procedure, whatever may be the principle in the abstract. In our view, there is not much benefit in following the strict rule laid down by <ORG> in <NAME> v. <NAME>  2 <ORG> (PC).

40. In our view, that may only lead to multiplicity of proceedings, namely, of the third party recovering the amount (beyond Section 95(2) limits) from the insured and the insured reimbursing himself from the insurer. We, therefore, do not want to extend the principle in <NAME> v. <NAME>  2 <ORG> (PC), in so far as the said case relates to the amount covered by the extra premium, to Indian conditions.

41. We, therefore, hold that where the insured has paid extra premium, the third party can claim the award amount, over and above Section 95(2) limits, directly from the insurer. We hold accordingly on Point No. 4.

42. In the result, we overrule <NAME> case [1990] 1 KLT 10. We hold that the insurer is entitled where there is a reservation clause to raise all defences open to the insured against the third party, in the proceedings initiated by the third party. This he could do in his own name. The insurer could plead that the insured was not negligent or that the third party was guilty of contributory negligence or that the quantum assessed was wrong or high. If there was liability in excess of the limits in Section 95(2) because of extra premium, the third party could be allowed to proceed against the insurer for the amount in excess of the limits in Section 95(2) .

43. We answer the reference accordingly. We send back the matters to <ORG> to decide the appeals on merits.