Case Note & Summary
The appeal arises from a motor accident claim where the deceased Rajesh Thapa died due to a collision between his motorcycle and a bus owned by respondent no.1. The appellants, being the legal heirs of the deceased, filed a claim before the Motor Accident Claims Tribunal (MACT) seeking compensation. The tribunal awarded compensation of Rs.13.75 lacs against the owner of the bus but exonerated the insurer, National Insurance Company, on the ground that the insurance policy had been cancelled from inception due to dishonour of the premium cheque. The appellants challenged this finding in the High Court. The High Court examined the evidence and found that the insurer had not proved that the cancellation was communicated to the insured or that the policy was validly terminated before the accident. The court held that the insurer's liability to third parties is not automatically extinguished by cheque dishonour; the insurer must follow the procedure under Section 64VB of the Insurance Act, 1938 and communicate the cancellation to the insured. Since the insurer failed to do so, it remained liable to pay compensation to the appellants. The court allowed the appeal, set aside the tribunal's order exonerating the insurer, and directed the insurer to pay the compensation amount to the appellants with interest, with the right to recover the same from the owner of the bus.
Headnote
A) Motor Vehicles Act - Third Party Liability - Cheque Dishonour - Policy Cancellation - Insurer cannot avoid liability to third parties merely by showing that the premium cheque was dishonoured and the policy was cancelled from inception; the insurer must prove that the cancellation was communicated to the insured and that the policy was validly terminated before the accident. In the absence of such proof, the insurer remains liable to pay compensation to third parties, with a right to recover the amount from the insured. (Paras 6-10) B) Insurance Law - Section 64VB of Insurance Act, 1938 - Risk Cover - The insurer's liability to third parties commences from the date of issuance of the policy, and cancellation for non-payment of premium does not automatically absolve the insurer of liability to third parties who have suffered loss due to the insured's negligence. The insurer must follow the procedure of cancellation and communicate the same to the insured. (Paras 6-10) C) Motor Vehicles Act, 1988 - Section 149 - Defence of Insurer - The insurer can raise defences only as specified under Section 149(2), and cancellation of policy due to cheque dishonour is not a defence against third party claims unless the policy was validly cancelled before the accident. (Paras 6-10)
Issue of Consideration
Whether the insurer can avoid liability to third parties on the ground that the insurance policy was cancelled from inception due to dishonour of the premium cheque, without proving that the cancellation was communicated to the insured and that the policy was validly terminated before the accident.
Final Decision
Appeal allowed. The order of the Motor Accident Claims Tribunal exonerating the insurer is set aside. The insurer, National Insurance Company Limited, is directed to pay the compensation amount of Rs.13.75 lacs to the appellants with interest as per the tribunal's order, with the right to recover the same from the owner of the bus (respondent no.1).
Law Points
- Motor accident compensation
- cheque dishonour
- policy cancellation
- insurer liability
- Motor Vehicles Act
- 1988
- Section 149
- Section 147
- Section 64VB
- Insurance Act
- 1938
- notice of cancellation
- third party rights
