Case Note & Summary
The case arises from a claim under the Employee's Compensation Act, 1923, filed by the dependents of deceased Kishor Shende, who died in a motor vehicle accident during the course of his employment with respondent No.5, the vehicle owner. The claimants (respondent Nos.1-4) sought compensation from the employer and the insurer. The Commissioner under the Employee's Compensation Act awarded Rs. 13,60,275/- with 12% interest per annum against the insurance company. The insurance company appealed, arguing that the policy was not in force because the premium cheque had been dishonoured and the policy was cancelled before the accident. The court framed the issue of whether the insurer is liable to pay compensation to third parties when the premium cheque is dishonoured and cancellation is communicated to the insured before the accident. The court examined the evidence, noting that the insurance company had issued a policy covering the vehicle from 20/03/2021 to 19/03/2022. The premium cheque was dishonoured on 26/03/2021, and the insurer sent a letter to the insured on 29/03/2021 informing of the dishonour and stating that the policy would be cancelled if payment was not made within 15 days. The accident occurred on 15/04/2021. The insurer argued that the policy stood cancelled from the date of dishonour. However, the court held that mere dishonour does not automatically cancel the policy; the insurer must prove that the policy was validly cancelled and that the cancellation was communicated to the insured and the registering authority before the accident. The insurer failed to produce any evidence of communication of cancellation to the insured or the registering authority. The court distinguished between the insurer's liability to the insured and to third parties, holding that third-party rights are protected under Section 147 of the Motor Vehicles Act, 1988. The court dismissed the appeal, affirming the award of compensation.
Headnote
A) Insurance Law - Third Party Liability - Dishonoured Cheque - Employee's Compensation Act, 1923, Section 22 - The court considered whether an insurance company is liable to pay compensation to third-party claimants when the premium cheque was dishonoured and the insurer communicated cancellation to the insured before the accident. Held that the insurer must prove that the policy was validly cancelled and that the cancellation was communicated to the insured before the accident; mere dishonour does not automatically absolve liability. (Paras 3-18) B) Insurance Law - Policy Cancellation - Requirement of Communication - Motor Vehicles Act, 1988, Section 147 - The court held that for a policy to be treated as cancelled, the insurer must not only cancel the policy but also communicate such cancellation to the insured and the registering authority before the accident. In the absence of such communication, the insurer remains liable to third parties. (Paras 10-15) C) Evidence - Burden of Proof - Insurance Company - Employee's Compensation Act, 1923 - The court held that the burden lies on the insurance company to prove that the policy was cancelled and that the cancellation was communicated to the insured before the accident. The insurer failed to produce any evidence of communication, and thus the policy was deemed to be in force at the time of the accident. (Paras 12-16)
Issue of Consideration
Whether the Insurance Company is responsible to pay compensation to the third party when the cheque issued towards premium of policy is dishonoured and same was duly communicated to the owner of the vehicle before occurrence of accident of vehicle?
Final Decision
The appeal is dismissed. The judgment and award dated 3/5/2025 passed by the Commissioner under Employee's Compensation Act, 1923 in E.C.A. Case No. 20/2021 is confirmed.
Law Points
- Insurance policy not automatically void on cheque dishonour
- insurer must prove cancellation before accident
- third-party rights protected under Section 147 of Motor Vehicles Act
- 1988
- Employee's Compensation Act
- 1923
- Section 22
