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Owner's Risk Clause Will Not Exempt Hotel From Liability For Theft of A Vehicle Given For Valet Park

Supreme Court of India in a recent Judgment titled  Taj Mahal Hotel Vs United India Insurance Company Ltd. & Others , delivered on November 14, 2019 comprising Justice Mohan M. Shantanagoudar & Justice Ajay Rastogi, held that in a case of theft of a Vehicle given for Valet Parking, the Hotel cannot claim exemption from liability by arguing it was due to acts of third parties beyond their control, or that they are protected by an Owner's Risk clause, prior to fulfilling its burden as required under Sections 151 and 152 of the Indian Contract Act, 1872.

 By now it is well established, that while a case of robbery by force is visibly beyond a bailee's control, in cases of private stealth, or simple theft where no force or violence is involved, the bailee still has the prima facie burden of explaining that the loss or disappearance of the goods in his custody is not attributable to his neglect or want of care , held the Bench. This is because no one apart from the bailee is in a position to explain the fate of the goods.

Supreme Court stated that, in short, the Hotel - Owner cannot contract out of liability for its negligence or that of its servants in respect of a Vehicle of its guest in any circumstance. Once the possession of the Vehicle is handed to the Hotel Staff or Valet, there is an implied contractual obligation to return the Vehicle in a safe condition upon the direction of the Owner.

Even where there is a general or specific exemption clause, there remains a prima facie burden of proof on the Hotel to explain that any loss or damage caused to the Vehicles parked was not on account of its negligence or want of care per Sections 151 & 152 of the Indian Contract Act, 1872 which applies the reasonable care and prudent man’s test to a condition where goods are bailed. It is only after this burden of proof is discharged that the exemption clause can come into force. The burden of proving that such loss or damage was covered by the exemption clause will also be on the Hotels.

The Civil Appeal No. 8611 of 2019 (arising out of SLP (Civil) No. 11213 of 2018 arose from the Judgment passed by the National Consumer Disputes Redressal Commission on February 05, 2018, dismissing the appeal against the Order/Judgment dated January 29, 2016, passed by the State Consumer Disputes Redressal Commission, New Delhi, in a consumer complaint case.

Facts of the case
Culling out the facts, on the night of August 01, 1998, at around 11 PM, the second complainant visited the Appellant - Hotel in his Maruti Zen car. While the car was insured with the Respondent - Complainant No. 1, the Appellant - Hotel had taken a non-industrial risk insurance/liability policy from the Respondent No. 3.

Upon reaching the Hotel, the Respondent No. 2 (Car Owner Insured) handed over his car and its keys to the Hotel Valet for parking, and then went inside the Hotel. The Parking tag handed over to him read inter alia as under:

Important Condition:
This Vehicle is being parked at the request of the guest at his own 'risk and responsibility' in or outside the hotel premises. In the event of any loss, theft or damage, the management shall not be held responsible for the same and the guest shall have no claim whatsoever against the management.”

When the Respondent No. 2 (Car Owner Insured) came out of the Hotel at about 1 am, he was informed that his vehicle had been driven away by another person. Upon enquiry with the security officer, he found that three young boys had come to the Hotel in their separate car, parked it and gone inside the Hotel.

After some time, they came out and asked the Valet to bring their car to the porch. During this process, one of the boys, one Deepak, picked up the keys of the car of Respondent No. 2 (Car Owner Insured) from the desk, went to the car parking, and stole the Maruti Zen car. Though the security guard tried to stop him, he sped away. A complaint was lodged with the police, but the car remained untraced.

The Respondent - (Car Insurer) settled the claim raised by the Car Owner - Insured in respect of the stolen car for Rs. 2, 80, 000/-.Thereafter, the Car Owner - Insured executed a Power of Attorney and a Letter of Subrogation in favour of the Car Insurer. They both then approached the State Consumer Disputes Redressal Commission, New Delhi, by filing a Consumer Complaint against the Appellant - Hotel seeking payment of the value of the car and compensation for deficiency in service.

The State Consumer Disputes Redressal Commission, New Delhi, relied upon the Supreme Court's decision in the case titled  Oberoi Forwarding Agency Vs. New India Assurance Company Ltd. , (2000) 1 SCR 554 and dismissed the consumer complaint on the ground that an Insurance Company acting as a subrogee (subrogate) cannot qualify as a ‘Consumer'. Hence, the Car Insurer filed Consumer Appeal before the National Consumer Disputes Redressal Commission.

As Oberoi decision was overruled by a subsequent decision of a Constitution Bench of the Apex Court in the case titled  Economic Transport Organization Vs. Charan Spinning Mills (Pvt.) Ltd. , (2010) 4 SCC 114, the National Consumer Disputes Redressal Commission, on September 20, 2010, remanded the case in Consumer Appeal to the State Consumer Disputes Redressal Commission, New Delhi, observing that the Car Insurer had locus standi in the case.

The State Consumer Disputes Redressal Commission, New Delhi, relied upon two decisions of the National Commission in the cases titled  Bombay Brazzerie Vs. Mulchand Agarwal, (2002) NCDRC 42 and  B. Dutta, Senior Advocate Vs Management of State, (2010) 1 CPC 319 and held that laws of bailment apply when a customer pays to park his car in a parking lot and it is then stolen or damaged.

It was noted that the price paid for food consumed in the hotel would include consideration for a contract of bailment from the consumer to the hotel. Hence, the State Consumer Disputes Redressal Commission, New Delhi, proceeded on the assumption that the Respondent - Car Owner had paid consideration for the contract.

In light of this, the State Consumer Disputes Redressal Commission, New Delhi, allowed the Consumer Complaint and directed the Appellant - Hotel to pay Respondent No. 2 (Car Owner - Insured) a sum of Rs. 2, 80, 000/- (the value of the car) with interest at 12% per annum and Rs. 50, 000/- as litigation costs.

In addition to this, it directed payment of Rs. 1, 00, 000/- to Respondent No. 2 (Car Owner - Insured) for inconvenience and harassment faced by him. The State Commission also held that Respondent No. 3 (Insurer of the Hotel) would not be liable to indemnify the loss caused to the Appellant - Hotel, as the theft of the car had not been notified to it within due time.

Consumer Appeal filed against Order/Judgment filed by the Appellant was disposed of Vide the impugned Judgment. On the question of locus standi of Respondent No. 1 (subrogee) to file the Consumer Complaint, the National Consumer Disputes Redressal Commission observed that its earlier Order dated 20.09.2010 (supra) had not been challenged and had consequently attained finality. Hence, it was held that the Appellant could not argue that Respondent No. 1 (Car Insurer) did not have locus standi.

The National Consumer Disputes Redressal Commission further applied the principle of infra hospitium (Latin for ‘within the hotel’) and observed that common law has historically imposed strict liability on a hotel for the loss of a guest’s property if the guest and the property were within the hotel premises.

It was noted that once the guest presents the car keys to the valet and possession of the car is transferred from the guest to the hotel, a relationship of bailment is established. Relying on various decisions by foreign Courts on strict liability for property kept infra hospitium, the National Consumer Disputes Redressal Commission held that the liability of a hotel cannot be precluded by a printed notice on the parking tag disclaiming liability. Consequently, the appeal against the order of the State Commission was dismissed, although the interest awarded was modified from 12% per annum to 9% per annum. Hence, the present appeal.

Key Issues
Since the compensation awarded by the State Commission (including interest) had already been paid by the Appellant to Respondent Nos. 1 & 2, thus, the Supreme Court confined itself to the followings substantial questions of law:

  1. First, Whether the Insurer had locus standi to file the complaint as a subrogee?;
  2. Second, Whether the Appellant - Hotel can be held liable for the theft of a car taken for valet parking, under the laws of bailment or otherwise?;
  3. Third, if the second question is answered in the affirmative, what is the degree of care required to be taken by the Appellant - Hotel?;
  4. Fourth, Whether the Appellant - Hotel can be absolved of liability by virtue of a contract?

  1. Locus Standi
    Relying on the Constitution Bench judgment of the Supreme Court in the case of Economic Transport Organisation v Charan Spinning Mills Pvt Ltd ((2010) 4 SCC 114), the Supreme Court held that the insurer did have locus standi in the matter.
  2. Hotel's Liability
    The Supreme Court discussed, at some length, the origin of the strict liability of an innkeeper or hotel at common law and precedent under which the rule has been applied in foreign jurisdictions. The Court observed that the principle of infra hospitium had been applied for the first time in an Indian court in the impugned order of the National Commission.

    Finally, keeping in mind changes in society since many of the original strict liability cases were decided and the socio-economic conditions in India, the Supreme Court observed that applying the common law rule of strict liability would be unnecessarily burdensome on the hotel industry in India but did not absolve hotels from a duty of care.

    The Court held that the laws of bailment would apply in cases where a car has been handed over by a guest to a Hotel valet, as was the case here. The Court observed that in case of free parking services offered by 5-star hotels, such services could be said to be paid for through the consideration given for Hotel meals, drinks or other services consumed in the Hotel. In such cases, the Court considered that there was an implied consideration for the bailment contract.
  3. Hotel's Standard of Care
    The Court observed that the general rule under bailment law is that in case goods are lost or damaged in the possession of a bailee, the bailee will be liable and the burden of proof is on the bailee to show that he had exercised reasonable care in respect of the bailed goods.

    The Court observed that the Hotel had not taken steps to ensure that the valet car keys were kept out of the reach of outsiders or that cars were parked in a safe location or that there were adequate systems to verify the car owner of a valet parked car. In fact, the Hotel failed to advance any arguments to support that it was not negligent in its duties towards the Hotel Patron. Consequently, the Court held that the theft of the Hotel Patron's car was as result of the Hotel's negligence.
  4. Hotel Liability Exclusion
    The Supreme Court referred to several cases which suggested that a bailee could limit its liability.

    However, ultimately the Supreme Court decided that it was not possible to exclude or limit liability under Indian statute law. The Court relied on provisions of sections 151 and 152 of the Indian Contract Act, 1872 (Contract Act) which specifically set out the degree of care required from a bailee in the absence of a contrary special contractual stipulation.

    Pertinently, the Court held that the words 'in the absence of a special contract' used in Section 152 of the Indian Contract Act, 1872 require that the degree of care which a bailee must exercise can be contracted to be higher but not lower than that provided for under the Contract Act.

The Supreme Court held that:

  • The Hotel could not contract out of liability for its own negligence or that of its servants in respect of a vehicle entrusted to its care in any circumstance.
  • There remains a prima facie burden of proof on the hotel to explain that any loss or damage caused to the vehicles parked was not on account of the Hotel's negligence or want of care per Sections 151 and 152 of the Contract Act.
  • It is only after that burden of proof is discharged, that an exemption clause (limiting liability for third party acts outside the control of the Hotel) can be effective. The burden of proving that such loss or damage is covered by the exemption clause will also be on the Hotel.
  • Liability for loss or damage by acts of god and third parties can be properly excluded by and exemption clause.

The words of the Supreme Court at Paragraph 20.2 in the Judgment provide some, but not all, indicia of what is required for a Hotel to discharge its duty of care in relation to vehicles which are valet parked by the Hotel:
 This would mean that it is not sufficient for the hotel to merely appoint an attendant or security guard who takes the responsibility of parking the vehicle and keeping the car keys in his custody until the vehicle owner is inside the hotel premises.

The hotel must take additional steps to guard against situations which may result in wrongful loss or damage to the car. This includes, for example, ensuring that the car keys are kept out of reach of outsiders, that the valet parks the car in a safe location, that parking spaces which are in the vicinity of the hotel are well-guarded that parking spaces inside the hotel (if any) are reasonably well-maintained and CCTV cameras are installed there for detecting any suspicious activity, that the car is handed over only to those who present the parking slip and so on. Needless to say this is only an illustrative, and not an exhaustive list.

Hotel owners and operators should carefully re-evaluate whether the systems, processes and procedures which they have in place are adequate in order to discharge the Hotel's duty of care when the Hotel accepts cars for Valet parking.

Written By: Dinesh Singh Chauhan, Advocate, J&K High Court of Judicature, Jammu.
Email: [email protected], [email protected]

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