Case Name: National Insurance Company Limited Vs Sunita Devi
Case Number: CIVIL APPEAL NO. 9854/2016
Date: Friday, the eighth Day of August, Two Thousand and Twenty Five
Quorum: Sri Justice K. Vinod Chandran, and Sri Justice N.V. Anjaria
Facts
On August 22, 2005, Dheeraj Singh, who was riding a motorcycle with a pillion, died in a road accident. The motorcycle Singh was operating was struck from behind by a speeding truck (HR 46A 1020). Singh was run over and ultimately died from the injuries. The Motor Accident Claims Tribunal (MACT), Delhi, determined the deceased to be 36 years old, working as a computer engineer earning ₹3,364/month. The Tribunal applied the multiplier of 17 and awarded the amount of ₹8,23,000 in compensation, deeming the sole negligent party to be the truck driver, and making the insurance company liable to pay first, with a right to recover by the owner. The Insurance Company claimed that it had no liability because the insurance policy for the vehicle had been cancelled due to non-payment (cheque bounce). The High Court upheld the award of the Tribunal and dismissed the Insurance Company’s appeal.
Issues
1) Whether the Insurance Company is liable to pay compensation to third parties when the insurance policy is cancelled due to non-payment of premium (i.e., cheque dishonour), and prior intimation of cancellation is given to the vehicle owner and RTO before the accident.
2) Whether the Tribunal and High Court were justified in applying the “pay and recover” principle in the present case.
Legal Provisions Involved
- Section 147(5), 149(1), 166 of the Motor Vehicles Act, 1988—pertaining to insurance requirements for third party risk, liability and claims.
- Article 142 of the Constitution—Supreme Court’s power to do complete justice.
Arguments
Petitioner (Insurance Company)
- The insurance policy was cancelled before the accident due to the cheque issued towards premium being dishonoured for insufficiency of funds.
- Both the owner and the RTO were duly intimated of the cancellation well before the accident.
- Cited Supreme Court precedents (National Insurance Co. Ltd. v. Seema Malhotra [(2001) 3 SCC 151], Deddappa & Ors. v. Branch Manager, National Insurance Co. Ltd. [(2008) 2 SCC 595], United India Insurance Co. Ltd. v. Laxmamma & Ors. [(2012) 5 SCC 234]) arguing total exemption from liability—since the contract of insurance stood rescinded due to failure of consideration (non-payment of premium), and a valid intimation was given.
Respondents (Claimants) - The direction to the Insurance Company to pay in the first instance was appropriate and just, considering the third party’s rights.
- The insurer has already deposited 50% of the compensation with interest, and the claimants have withdrawn the same.
- Argued for maintaining the protection for third parties as per statutory policy even in cases where the insurance stands cancelled.
Analysis
The Court noted the cheque towards the premium was dishonoured and the cancellation was communicated to both the owner and RTO more than three months prior to the accident. Reliance was placed on prior Supreme Court judgments:
Deddappa v. National Insurance Co. Ltd.: The insurance contract stands rescinded in law for failure of consideration if premium remains unpaid, and if cancellation is communicated before the accident. Yet, exercising Article 142, the Court permitted “pay and recover”—insurer pays, then recovers from owner.
United India Insurance Co. Ltd. v. Laxmamma: Confirmed the insurer’s statutory liability exists unless cancellation has been communicated prior to the accident; again, Court used “pay and recover” for practical justice.
Both judgments protect third party interests while not making the insurer ultimately liable absent premium payment. The law prioritises third party compensation but permits insurer to recover from the vehicle owner when contract rescinds before the accident and due notice is given.
Judgment
The Supreme Court held:
50% of the compensation already paid and withdrawn by the claimants is not recoverable from the claimants; to do so would be harsh and undo the justice rendered.
The Insurance Company may recover this 50% amount (with interest) from the owner of the offending vehicle.
The remaining 50% of compensation with interest may be recovered directly by the claimants from the vehicle owner in accordance with law.
The “pay and recover” principle is thus reaffirmed, given the insurer’s compliance with statutory procedure for cancelling coverage prior to the accident.
Conclusion
The judgment emphasizes despite the fact that insurers are not liable if a policy rescinded for non-payment with timely notice, in the interests of practical justice for third parties, an arrangement should be followed where third parties are paid first, and thereafter the insurer can recover from the owner if permitted. This outcome protects the intention of the Motor Vehicles Act while upholding a contractual principle overall. The Supreme Court’s decision affirms statutory protection for third party victims, clarifying the statutory basis for statutory rights, obligations, and liabilities of insurers in relation to an insurer’s default to pay premiums, and subsequent cancellation of the policy, based on accepted common law principles and purposes of legislation.
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WRITTEN BY __ Kondala Phani Priya
