Oriental Insurance Co Ltd vs Sanjay & Ors
- Court
- Delhi High Court
* IN THE HIGH COURT OF DELHI AT NEW DELHI
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% Reserved on : 29 September 2026
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Pronounced on : 06 November 2026
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Uploaded on : 06 November 2026
# CNR No. DLHC011644812018
+ MAC.APP. 610/2018 & CM APPL. 26578/2018
ORIENTAL INSURANCE CO LTD .....Appellant
Through: Mr. Tarkeshwar Nath, Mr. Harshit
Singh, Mr. Satyam Roy, Advocates.
Mr. Abhinav Kumar, Dy. Manager,
OIC (through VC).
versus
SANJAY & ORS .....Respondents
Through: Mr. Manish Maini, Mr. Abhinav
Sharma, Ms. Anjali Singh, Ms.
Aastha Chauhan, Advocates for
Respondent No.1.
Mr. Sameer Nandwani, Advocate/
Amicus Curiae.
# CNR No. DLHC010067272019
+ MAC.APP. 45/2019
SANJAY .....Appellant
Through: Mr. Manish Maini, Mr. Abhinav
Sharma, Ms. Anjali Singh, Ms.
Aastha Chauhan, Advocates.
versus
ORIENTAL INSURANCE COMPANY LTD & ORS....Respondents
Through: Mr. Tarkeshwar Nath, Mr. Harshit
Singh, Mr. Satyam Roy, Advocates
for Respondent No.1.
Mr. Abhinav Kumar, Dy. Manager,
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 1 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
OIC (through VC).
Mr. Sameer Nandwani, Advocate/
Amicus Curiae.
CORAM:
HON'BLE MR. JUSTICE ANISH DAYAL
INDEX
S.No. Title Page No.
1. The Accident 3-4
2. Submissions on behalf of parties 4-7
3. Submissions on behalf of claimant 7-7
4. Submissions on behalf of Amicus Curiae 7-11
5. Analysis 12-20
6. Statutory mandate of third-party insurance 20-20
7. Duty of insurer to satisfy awards and judgments 20-22
8. Cover note 22-25
9. Avoidance of contract 25-25
10. Interplay with Insurance Act, 1938 26-27
11. Liability to pay and right of recovery 27-40
12. Guideposts 40-41
13. Quantum of compensation 41-45
14. Conclusion 45-46
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 2 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
JUDGMENT
ANISH DAYAL, J.
1. These appeals raise the issue of third-party liability owed by the
Insurance Company in cases where the cheque for payment of premium,
issued by the insured, was dishonoured prior to the accident.
2. These cross-appeals have been filed assailing impugned award dated
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19 May 2018 passed by the Motor Accident Claims Tribunal, Shahdara
District, Karkardooma Courts, Delhi (‘ Tribunal/MACT ’) in MACT
No.541/2016 . While, MAC.APP.610/2018 has been filed by the Insurance
Company, pleading for exoneration from liability basis that the cheque for
payment of premium for insurance bounced and the insurance policy stood
cancelled. MAC.APP. 45/2019 on the other hand, has been filed by Sanjay
(hereinafter, ‘ claimant ’), seeking enhancement of compensation.
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3. By order dated 09 July 2018, notice had been issued in
MAC.APP.610/2018 , directing the Insurance Company to deposit the entire
awarded amount, subject to which enforcement of the impugned award had
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been stayed. Thereafter, on 11 November 2022, 50% of the awarded
amount along with interest, had been released to the claimant.
The Accident
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4. The accident occurred on 10 October 2014 at about 06:40 am, when
the claimant left his house and was travelling to his office at Municipal
Corporation of Delhi (‘ MCD ’), Karkardooma by bicycle. He was hit by a
mini-bus bearing registration No. DL-1PB-9872 (hereinafter, ‘ offending
vehicle ’). FIR No.789/2014 was registered under Sections 279/338 of
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 3 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
Indian Penal Code, 1860 ( IPC ) with P.S. Farsh Bazar and the driver had
been arrested and charge-sheeted.
5. Driver and owner did not contest the claim petition before MACT
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and were proceeded ex-parte vide order dated 07 August 2015. Driver and
owner did not appear before this Court as well, and the matter was
contested between the Insurance Company and claimant through their
respective counsels, Mr. Harshit Singh and Mr. Manish Maini . Attempts for
service was made on driver & owner and ultimately, they were served
through publication; however, nobody has appeared for many dates since
2018 till 2026.
6. Offending vehicle was insured with the Insurance Company,
however, the cheque against payment of premium had been dishonoured
and this had been communicated by Insurance Company to the owner, as
well as, to the Regional Transport Office (‘ RTO ’). MACT, however, relied
on certain decisions to conclude that subsequent cancellation of insurance
policy does not affect the rights of third-party, which accrue as on the date
of accident and mere right of recovery had been granted.
7. Insurance Company was directed to pay the compensation amount
with rights of recovery from driver & owner, who were held jointly and
severally liable to pay the amount of compensation. Compensation of
Rs.9,25,000/- along with 9% interest was awarded and directions for
staggered release from fixed deposits was given.
Submissions on behalf of parties
8. Mr. Harshit Singh , counsel for Insurance Company, first placed the
undisputed facts before the Court.
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 4 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
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9. The insurance policy was effective from 19 January 2014 to 18
January. Subsequently, the insurance policy was cancelled due to dishonour
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of cheque on account of ‘ insufficient funds ’ on 20 January 2014. The
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accident had occurred nine months thereafter on 10 October 2014.
10. Communication regarding cancellation of the insurance policy was
sent to the owner and RTO, as under:
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a. R3W1/1 was the cheque issued on 10 January 2014;
b. R3W1/2 was the Return Memo;
c. R3W1/3 was the endorsement for the cancelled insurance policy and
schedule;
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d. R3W1/4 was the letter dated 21 January 2014 issued to the owner;
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e. R3W1/5 was the letter dated 21 January 2014 to the RTO;
f. R3W1/6 was dispatch noting and postal receipts, regarding issuance
of letter of cancellation to the owner; and
g. R3W1/7 was dispatch noting and postal receipts, regarding issuance
of letter of cancellation to the RTO.
11. The Court has perused these documents and finds them to be in
order, proved by the testimony of Ms. Vinita Bajaj, Assistant Manager,
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Oriental Insurance Company (‘ R3W1 ’). Return date of the cheque was 17
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January 2014. On 20 January 2014, an endorsement schedule was issued
which stated that, “ it is hereby declared that consequent upon dishonour of
the cheque, this policy has become void ab initio for want of consideration.
Therefore, the Company shall have no liability of whatsoever nature under
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this policy. ” Thereafter, on 21 January 2014, a communication was
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 5 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
addressed to the owner- Rajan Kumar ( the insured ), stating that the cheque
had been dishonoured and that the insurance policy stands cancelled and,
no claim shall be entertained.
12. On the same date, a communication was sent to the RTO, stating that
the cheque had been dishonoured and the insurance policy stands cancelled
from their end, “ right from inception of the policy ”. It was further noted
that, “ there is no cover for vehicle number DL-01PB-9872 ”. Notes from the
dispatch register of the Insurance Company sent to owner- Rajan Kumar , as
well as, to the RTO has been noted and the speed-post receipt has been
exhibited.
13. Further, during the proceedings, notice was issued under Order XII
Rule 8 of the Code of Civil Procedure, 1908 (‘ CPC ’) to owner of the
offending vehicle to produce the original insurance policy, which had been
declared ‘ void ab initio ’ on account of dishonour of the cheque, with all the
details thereafter provided. The Insurance Company had taken an objection
upfront, in their written statement, which has also been perused.
14. Mr. Harshit Singh , counsel for Insurance Company, relied upon the
decisions of Supreme Court in Deddappa & Ors. v. Branch Manager,
National Insurance Co. Ltd. (2008) 2 SCC 595, National Insurance
Company Ltd. v. Seema Malhotra (2001) 3 SCC 151, National Insurance
Company Ltd. v. Yellamma & Anr. (2008) 7 SCC 526, National Insurance
Company Ltd. v. Parvathneni (2009) 8 SCC 785, United India Insurance
Company Ltd. v. Laxmamma & Ors. (2012) 5 SCC 234, Oriental
Insurance Company Limited v. Inderjit Kaur (1998) 1 SCC 371, New
India Assurance Company Ltd. v. Rula & Ors. (2000) 3 SCC 195.
Reliance has also been placed on Section 64VB of Insurance Act, 1938
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 6 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
(‘ Insurance Act ’) which provides that no risk is to be assumed, unless
premium is received in advance.
15. Additionally, reliance was also placed on decisions of this Court in
HDFC Ergo General Insurance Company Limited v. Chander Kala Devi
2023:DHC:4979 and Bhagwat Prasad Sharma & Anr. v. Satish Kumar &
Anr. 2025:DHC:509.
Submissions on behalf of claimant
16. Mr. Manish Maini , counsel for claimant, contended that once the
insurance policy was issued, the Insurance Company was liable to cover the
liability of insured/owner. Insurance Company could not be exonerated,
merely because premium had not been paid due to dishonour of cheque. In
any event, he stated that rights of recovery have been rightly granted. He
further stated that the Insurance Company had consciously violated the
provisions of Section 64 VB of Insurance Act, while issuing the insurance
policy and assuming the risk without pocketing any premium. In his
support, he placed reliance was placed on the decision of Supreme Court in
Inderjit Kaur ( supra ) and decisions of this Court in Usha Aggarwal v.
Pramod Kumar Gupta & Ors. 2013:DHC:6092, as also National
Insurance Company Ltd. v. Poonam & Ors. 2014:DHC:1833.
Submissions on behalf of Amicus Curiae
17. Pursuant to the submissions, certain issues arose for consideration
before the Court, inter alia , whether a cover note is an interim document
which does not fully assume the risk; whether the risk is assumed on the
date of issuance of the insurance policy and would the risk not be assumed
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 7 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
on the date of receipt of payment; does the Insurance Company provide a
caveat through the cover note that this will not amount to a contract of
insurance, until premium has been received and to that extent, does the
Insurance Company have the right of voidability of contract in case of
dishonour of cheque or non-receipt of premium.
18. For the purposes of understanding these aspects, the Court appointed
Mr. Sameer Nandwani , Advocate, who regularly appears in motor accident
appeals as Amicus Curiae to provide assistance to the Court.
19. Mr. Nandwani , Amicus Curiae appeared along with Mr. Abhinav ,
Deputy Manager, Oriental Insurance Company Ltd. Mr. Nandwani stated
that the cover note issued by the Insurance Company is equal to a
certificate of insurance till the expiry of sixty days, after which, it comes to
an end by efflux of time.
20. Otherwise, issuance of insurance policy crystalizes the contract in
terms of assuming the risk. For this, he placed reliance upon the decision of
this Court in Oriental Insurance Co. v. Vinod Kumar , 2007 SCC OnLine
Del 609, the decision dealt with the question of law relating to third party
liability of insurance company under the Motor Vehicles Act, 1988
(hereinafter, ‘ MV Act ’), even after the cheque issued by the insured had
bounced and notice terminating the contract of insurance had been served.
Court noted that under the law of contract, if one party commits
fundamental breach of terms, the other party is entitled to terminate the
contractual relationship and be absolved from performance. Default in
payment is a fundamental breach of contract.
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 8 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
21. However, MV Act being a beneficial legislation, this aspect is treated
differently to ensure that the legislative intent and benefit is not nullified by
Insurance Companies on the basis of contractual terms to the contract.
Notably, the Court noted that, “ courts have always endeavoured to ensure
maximum protection of the third-parties, who suffer as a result of road
accident so that they are not penalized. ”
nd
22. In that case, cheque had been issued on 22 February 1997 [ sic
December ] and the insurance policy was valid for a period of one year from
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22 December 1997 onwards. The cheque was dishonoured and
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communication was made vide letter dated 7 January 1998 to owner of the
car that the insurance cover stood cancelled and no claim will be
entertained.
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23. The accident occurred on 6 October 1998 much after the same. The
Tribunal relied on Inderjit Kaur ( supra ) and Rula ( supra ) granting
recovery rights. In their support, the Insurance Company relied on Seema
Malhotra ( supra ). Supreme Court had also noted the Gazette Notification
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dated 17 October 2002 issued by Insurance Regulatory and Development
Authority (‘ IRDA ’) which stated as under:
“ 4. Commencement of Risk: In all cases of risks
covered by the policies issued by an insurer, the
attachment of risk to an insurer will be in consonance
with the terms of Section 64 VB of the Act and except in
the cases where the premium has been paid in cash, in
all other cases the insurer shall be on risk only after
the receipt of the premium by the insurer.
Provided that in the case of a policy of a general
insurance that where the remittance made by the
proposer or the policy holder is not realized by the
insurer, the policy shall be treated as void ab-initio.
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 9 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
Provided further that in the case of a policy of life
insurance, the continuance of the risk or otherwise
shall depend on the terms and conditions of the policy
already entered into.”
(emphasis added)
24. The Court traversed various provisions of the MV Act and the
Central Motor Vehicles Rules, 1989 (hereinafter, ‘ MV Rules ’) to provide its
analysis, effectively stating that there are three stages of documentation by
Insurance Company inter alia first, issuance of a cover note under Form 52
in MV Rules; second , issuance of a certificate of insurance; and third ,
issuance of the insurance policy. Once a cover note is issued, the same will
be valid for a period of sixty days and not thereafter. After the expiry of that
period, if the Insurance Company does not issue the insurance policy, the
duty is on the Insurance Company to notify the registering authority under
Section 147(4) of MV Act within seven days. The Court held that the Act
does not provide for consequences of violation of Section 147(4) and,
therefore, Insurance Company would not be liable to third parties, if there
is a default in informing the registering authority.
25. However, once a certificate of insurance is issued followed by an
insurance policy, as per Section 149(1) of MV Act, the Insurance Company
would be entitled to pay third parties, even if they are entitled to avoid or
cancel the policy or may have avoided or cancelled the policy. What would
be left is only right of recovery, which was indeed granted. The Court
recognized that in Inderjit Kaur ( supra ) and Rula ( supra ), the Insurance
Company was held liable to pay compensation, even if the cover note was
cancelled and recovery rights had been granted. Seema Malhotra ( supra )
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 10 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
was, however, distinguished as the facts related to a claim filed before the
Consumer Court.
26. In a recent judgment of the Supreme Court in National Insurance
Co. Ltd. v. Sunita Devi & Ors. 2025 SCC OnLine SC 1647, the issue
related to the insurance policy issued for the offending vehicle which stood
cancelled and the owner and the RTO had been informed prior to the date
of accident. The Tribunal held that they have a right to recover from the
owner. Insurance Company placed reliance upon Seema Malhotra ( supra ),
Deddappa ( supra ) and Laxmamma ( supra ).
27. The Supreme Court noted that in Deddappa ( supra ), the Court had
held that contract of insurance stood rescinded due to failure of
consideration and intimation to that effect had been given. However, in
exercise of powers under Article 142, the Insurance Company had been
directed to compensate and recover the amount from the insured.
28. Even in Laxmamma ( supra ), despite the cancellation, the Court had
upheld the right to pay and recover. In Sunita Devi ( supra ) itself, the
Supreme Court noted that non-payment of premium would, in law, absolve
the Insurance Company from liability to pay compensation, once intimation
of cancellation has been sent to the parties concerned. However, in the final
directions, the Court directed release of 50% compensation to claimants,
which could not be recovered from them. Insurance Company was directed
to recover this amount from the owner. As for the balance 50%, the
claimants were entitled to recover the same from the owner.
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 11 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
Analysis
29. Before diving into the various decisions, which counsel have cited, it
would be apposite to extract the relevant provisions, as applicable. Though
the accident occurred in 2014, the provisions of MV Act prior to the Motor
Vehicles (Amendment) Act, 2019 (hereinafter, ‘ 2019 amendment ’) would
apply. For purposes of completeness, the discussion below accounts for
post 2019 amendment provisions as well.
30. Relevant provisions ( pre and post 2019 amendment ) for the purposes
of our discussion are extracted as under:
Prior to Motor Vehicles Amendment Act, 2019
“ Section 145. Definitions- in this Chapter
(b)“certificate of insurance” means a certificate issued
by an authorised insurer in pursuance of section 147
and includes a cover note complying with such
requirements as may be prescribed, and where more
than one certificate has been issued in connection with
a policy, or where a copy of a certificate has been
issued, all those certificates or that copy, as the case
may be;
……
(d)“policy of insurance” includes certificate of
insurance.
“ Section 147. Requirements of policies and limits of
liability
(3) A policy shall be of no effect for the purposes of this
Chapter unless and until there is issued by the insurer
in favour of the person by whom the policy is effected,
a certificate of insurance in the prescribed form and
containing the prescribed particulars of any condition
subject to which the policy is issued and of any other
prescribed matters; and different forms, particulars
and matters may be prescribed in different cases.
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 12 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
(4) Where a cover note issued by the insurer under the
provisions of this Chapter or the rules made thereunder
is not followed by a policy of insurance within the
prescribed time, the insurer shall, within seven days of
the expiry of the period of the validity of the cover note,
notify the fact to the registering authority in whose
records the vehicle to which the cover note relates has
been registered or to such other authority as the State
Government may prescribe.
(5) Notwithstanding anything contained in any law for
the time being in force, an insurer issuing a policy of
insurance under this section shall be liable to
indemnify the person or classes of persons specified in
the policy in respect of any liability which the policy
purports to cover in the case of that person or those
classes of persons.
Section 149. Duty of insurers to satisfy judgments and
awards against persons insured in respect of third
party risks
(1) If, after a certificate of insurance has been issued
under sub-section (3) of section 147 in favour of the
person by whom a policy has been effected, judgment
or award in respect of any such liability as is required
to be covered by a policy under clause (b) of sub-
section (1) of section 147 (being a liability covered by
the terms of the policy) or under the provisions of
section 163A is obtained against any person insured by
the policy, then, notwithstanding 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.
……
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 13 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
(4) Where a certificate of insurance has been issued
under sub-section (3) of section 147 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 147, 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.”
Post Motor Vehicles Amendment Act, 2019
Section 145. Definitions- in this Chapter
(b) “certificate of insurance” means a certificate
issued by an authorised insurer in pursuance of section
147 and includes a cover note complying with such
requirements as may be prescribed, and where more
than one certificate has been issued in connection with
a policy, or where a copy of a certificate has been
issued, all those certificates or that copy, as the case
may be ;
…….
(f) “policy of insurance” includes certificate of
insurance;
Section 147. Requirement of policies and limits of
liability
(3) A policy shall be of no effect for the purposes of this
Chapter unless and until there is issued by the insurer
in favour of the person by whom the policy is effected,
a certificate of insurance in the prescribed form and
containing the prescribed particulars of any condition
subject to which the policy is issued and of any other
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 14 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
prescribed matters; and different forms, particulars
and matters may be prescribed in different cases;
……
(5) Where a cover note issued by the insurer under the
provisions of this Chapter or the rules or regulations
made thereunder is not followed by a policy of
insurance within the specified time, the insurer shall,
within seven days of the expiry of the period of the
validity of the cover note, notify the fact to the
registering authority or to such other authority as the
State Government may prescribe ;
(6) Notwithstanding anything contained in any other
law for the time being in force, an insurer issuing a
policy of insurance under this section shall be liable to
indemnify the person or classes of persons specified in
the policy in respect of any liability which the policy
purports to cover in the case of that person or those
classes of persons.
Section 150. Duty of insurers to satisfy judgments and
awards against persons insured in respect of third
party risks.
(1) If, after a certificate of insurance has been issued
under sub-section (3) of section 147 in favour of the
person by whom a policy has been effected, judgment
or award in respect of any such liability as is required
to be covered by a policy under clause (b) of sub-
section (1) of section 147 (being a liability covered by
the terms of the policy) or under the provisions of
section 164 is obtained against any person insured by
the policy, then, notwithstanding 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 award any sum not exceeding the sum
assured payable thereunder, as if that person were the
decree holder, in respect of the liability, together with
any amount payable in respect of costs and any sum
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 15 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
payable in respect of interest on that sum by virtue of
any enactment relating to interest on judgments.
…..
(4) Where a certificate of insurance has been issued
under sub-section (3) of section 147 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 condition other
than those in 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 147, be of
no effect.
(emphasis added)
31. After the 2019 amendment, Section 147 continued to be in the same
form, except, Section 147(4) and Section 147(5) became Section 147(5) and
Section 147(6) respectively; Section 149(1) and Section 149(4) morphed
into Section 150(1) and Section 150(4) respectively , though, with a notable
omission of the ‘ pay and recovery ’ clause. Definitions provided under
Section 145(b) and Section 145(d) prior to the 2019 amendment retained
form, except, are now stated in Section 145(b) and Section 145(f) .
32. Relevant provisions of the MV Rules, which deal with issuance of
certificate of insurance, cover notes are extracted as under:
“ Rule 141. Certificate of insurance
An authorised insurer shall issue to every holder of a
policy of insurance, a certificate of insurance in Form
51 in respect of each such vehicle.
Rule 142. Cover notes
(1) Every cover note issued by an authorised insurer
shall be in Form 52.
(2) A cover note referred to in sub-rule (1) shall be
valid for a period of sixty-days from the date of its
issue and the insurer shall issue a policy of insurance
before the date of expiry of the cover note.
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 16 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
Rule 143. Issue of certificates and cover notes
Every certificate of insurance or cover note issued by
an insurer in compliance with the provisions of this
Chapter shall be duly authenticated by such person as
may be authorised by the insurer.”
(emphasis added)
33. For the sake of completeness, Form 51 and Form 52 , as provided in
the MV Rules, are also extracted hereunder for reference:
Form 51
Signature Not Verified
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Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
Form 52
34. Additionally, the relevant provision of the Insurance Act, Section
64VB, is extracted as under:
“ Section 64VB. No risk to be assumed unless
premium is received in advance
(1) No insurer shall assume any risk in India in respect
of any insurance business on which premium is not
ordinarily payable outside India unless and until the
premium payable is received by him or is guaranteed
to be paid by such person in such manner and within
such time as may be prescribed or unless and until
Signature Not Verified
MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 18 of 46
Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
11:54:18
deposit of such amount as may be prescribed, is made
in advance in the prescribed manner.
(2) For the purposes of this section, in the case of risks
for which premium can be ascertained in advance, the
risk may be assumed not earlier than the date on which
the premium has been paid in cash or by cheque to the
insurer.
Explanation.--Where the premium is tendered by postal
money order or cheque sent by post, the risk may be
assumed on the date on which the money order is
booked or the cheque is posted, as the case may be.
(3) Any refund of premium which may become due to
an insured on account of the cancellation of a policy or
alteration in its terms and conditions or otherwise
shall be paid by the insurer directly to the insured by a
crossed or order cheque or by postal money order and
a proper receipt shall be obtained by the insurer from
the insured, and such refund shall in no case be
credited to the account of the agent.
(4) Where an insurance agent collects a premium on a
policy of insurance on behalf of an insurer, he shall
deposit with, or dispatch by post to, the insurer, the
premium so collected in full without deduction of his
commission within twenty-four hours of the collection
excluding bank and postal holidays.
(5) The Central Government may, by rules, relax the
requirements of sub-section (1) in respect of particular
categories in insurance policies.
(6) The Authority may, from time to time, specify, by the
regulations made by it, the manner of receipt of
premium by the insurer. ”
(emphasis added)
35. As can be seen from the provisions extracted above, MV Act has
used the phrases policy of insurance, certificate of insurance and cover
note rather interchangeably, thereby, muddying clear interpretation and
application. An attempt is made below to demystify and declutter this
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aspect, employing, not only holistic interpretation of the relevant provisions
of the MV Act and the MV Rules, but also judicial interpretations that
precede.
Statutory mandate of third-party insurance
36. Chapter XI of MV Act mandates insurance of motor vehicles against
third-party risks. While Section 145 is the definition clause relating to the
Chapter, Section 146(1) mandates that a motor vehicle can be used in a
public place, only if there is a policy of insurance complying with the
requirements of the Chapter.
37. As per Section 145(d) [Section 145(f) post 2019 amendment] , the
policy of insurance includes a certificate of insurance . Rule 141 of MV
Rules also uses both the terms and specifies Form 51 as the mandated form
for both policy of insurance/certificate of insurance. Such a policy must
comply with certain requirements as prescribed under Section 147(1) .
Section 147(3) mandates that a policy shall be of no effect unless a
certificate of insurance is issued in the prescribed form. A holistic reading
of the above leads to the inexorable conclusion that the statute mandates
that a contract of insurance comes into play once a policy of
insurance/certificate of insurance is issued in the prescribed form viz. Form
51 and complies with the requirements specified in Section 147(1) .
Duty of insurer to satisfy awards and judgments
38. Section 149(1) [Section 150(1) post 2019 amendment] mandates that
once a certificate of insurance/policy of insurance is issued in favour of the
insured, and any judgment/award is passed in respect of liability as required
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under Section 147 or under Section 163A [Section 164 post 2019
amendment] , then the insurer is mandated to pay to the successful claimant
(decree holder) the sum awarded. This duty is mandatory and
notwithstanding the insurer’s entitlement to avoid or cancel the policy, and
even if the insurer has avoided or cancelled the policy.
39. It is, therefore, ex facie clear by the plain language of Section 149(1)
[Section 150(1) post 2019 amendment] that once the policy of
insurance/certificate of insurance is issued, the insurer steps into the
judgment debtor’s shoes in respect of the liability, including costs and
interest. This would include situations where the insurer would have issued
the policy of insurance/certificate of insurance even though premium had
not been received, or if received through a cheque, the cheque stood
dishonoured.
40. The statutory obligation, therefore, kicks in on the issuance of the
policy of insurance/certificate of insurance in the prescribed form. It is for
the insurer to be careful and secure itself from mandatory liability to not
issue a policy of insurance/certificate of insurance , in case the premium has
not been finally received by the Insurance Company either through
omission of the agent or due to dishonour of the cheque, or for any other
reason. Insurance Company ought to issue a policy of insurance/certificate
of insurance only when they actually receive the premium, or else they will
be under the risk of the statutory mandate under Section 149(1) [Section
150(1) post 2019 amendment] .
41. Section 64VB of Insurance Act conflates well with this mandate since
it states that the risk of an insurer commences on the receipt of premium.
However, there is an overlay through the special legislation of Motor
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Vehicles Act, which creates a deeming fiction that, despite the premium not
being received, the Insurance Company chooses or opts to issue a policy of
insurance/certificate of insurance , then the mandatory liability gets
triggered. This interpretation also finds resonance in the judgment of a
Single Judge of the High Court of Karnataka in Neelamma & Ors. v.
Jetteppa & Anr. 2024 SCC OnLine Kar 27100.
Cover note
42. A cover note which is quite a ubiquitous document issued by
Insurance Companies either directly or through agents to persons, who
propose a risk cover for their vehicle, is inherently an interim document but
has engendered much dispute around it on the aspect of liability. However,
the procedure under the MV Act and the MV Rules is quite clear and if it is
followed by Insurance Companies, it would not create any complications.
43. Rule 142(1) of the MV Rules requires a cover note to be in Form 52 ,
whereas, Rule 142(2) prescribes the validity of such a cover note for sixty
days. This provision itself categorically denotes that the cover note is a
document of an interim nature and survives only for sixty days.
44. Section 145(b) of the MV Act introduces a bit of a sidewind for this
creature termed as ‘ Cover Note ’. Section 145(b) while defining ‘ certificate
of insurance ’ includes within its purview “ a cover note complying with
such requirements as may be prescribed. ” Potentially this could mean that a
cover note is equal to a certificate of insurance and, therefore, once issued
has a permanent character triggering mandatory liability under Section
149(1) [Section 150(1) post 2019 amendment] as also crystallizing the
contract of insurance under Section 147(3) .
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45. However, the statute has to be read in a harmonious, holistic manner
and needs to be interpreted to promote consistency in its application and its
intent. If a cover note is taken as a certificate of insurance, then it ought to
be in Form 51 instead of Form 52 under Rule 141 of MV Rules, as opposed
to Rule 142 . Both of these forms are distinctive, in that, Form 52 provides
details of the insured, the vehicle insured, date of the commencement and
expiry of insurance and persons or classes entitled to drive, the limitations,
while Form 51 fleshes out a fair amount of detail on each of these aspects.
46. In the opinion of this Court, to provide some meaning to Section
145(b) would require interpreting the phrase, “ includes a cover note
complying with such requirements as may be prescribed ” to mean a cover
note which masquerades as a certificate of insurance and complies with all
the requirements that a certificate of insurance ought to comply with i.e.
Rule 141 read with Form 51 and Section 147(3).
47. If such an amplified cover note is issued, seeming to comply with all
the formalities provided by MV Act and MV Rules for a certificate of
insurance, though, titled as a cover note, the statute would deem it to be a
certificate of insurance, thereby, triggering a mandatory liability which
cannot be avoided under Section 149(1) [Section 150(1) post 2019
amendment] .
48. Insurance companies ought to take note of this if they intend to issue
what is only an interim document, i.e. a cover note while retaining the
option of not issuing a policy of insurance/certificate of insurance after
expiry of the validity of sixty days.
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49. Section 147(4) [Section 147(5) post 2019 Amendment ] categorically
provides that a cover note not followed by a policy of insurance within the
prescribed time [ sixty days, as per Rule 142 (2) ], requires the insurer to
notify the registering authority or any authority prescribed by the State
Government within 7 days of expiry of this sixty days’ period.
50. Therefore, after issuing the cover note, if the insurer chooses not to
enter into a final contract of insurance, it has the option of not issuing the
insurance policy after the expiry of sixty-day deadline. The duty to notify
the registering authority under Section 147(4) [Section 147(5) post 2019
Amendment] , though preceded by the phrase ‘ shall’ , has been interpreted to
not attract any penal action in relation to such an omission, as per the
decision of this Court in Vinod Kumar ( supra ).
51. In the opinion of this Court, the duty is mandated on the Insurance
Company. Considering it is resident in the MV Act under Chapter XI, any
omission to notify may be interpreted as the Insurance Company not
wishing to avoid the contract of insurance and, therefore, liability. Omitting
to notify the registering authority within 67 days of having issued the cover
note, would effectively transfer the duty on the insured to chase the
Insurance Company in order to confirm the insurance policy and the
issuance of certificate of insurance. Being a just and beneficial legislation,
this burden cannot be transferred to the insured, since it would effectively
leave an insured unprotected only because of an omission by the Insurance
Company.
52. In all practical terms, the insured assumes that it is covered once it
has received a cover note and is cannot be ascribed with detailed
knowledge of legal provisions in order to be cast with the duty to pursue
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the Insurance Company for crystallization of its contract of insurance. The
duty would therefore, be on the Insurance Company to inform the owner if
it does not wish to issue the certificate of insurance i.e. not crystallize the
contract. Further, by bringing it to the notice of the registering authority, it
ensures that it is officially aware that the concerned vehicle runs without a
valid third-party liability insurance. The Insurance Company has an
implicit duty to inform the insured as well to whom the cover note was
issued.
Avoidance of contract
53. As per the above discussion, the window available to an Insurance
Company to avoid crystallizing a contract of insurance, is within 67 days of
issuing a cover note. In case, it does not receive premium or the insurance
policy during that period, the Insurance Company can choose to inform not
only the registering authority, but also the insured that they will not issue
the insurance policy or the certificate of insurance.
54. Till the time, the Insurance Company issues such a notification to the
registering authority and to the insured, the assumption of risk would be
with the Insurance Company. The cover note is, therefore, rightly an
interim document and the Insurance Companies have been given a facility
to issue an interim cover till all the other aspects fructify, inter alia the
receipt of premium and other details required for issuance of a policy of
insurance/certificate of insurance. To that extent, the cover note therefore
holds the ground as far as liability is concerned.
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Interplay with Insurance Act, 1938
55. Issuance of the cover note triggers an assumption of risk since the
premium has been received either as direct transfer or by tendering of a
negotiable instrument. A Negotiable Instrument tendered, as per the
Negotiable Instruments Act, 1881 (‘ NI Act ’) is deemed to be a valid
payment. This emanates out of the Explanation to Section 64VB (2) of
Insurance Act which provides that premium may be tendered by postal
money order or cheque sent by post.
56. The explanation to Section 64VB provides that, if premium is
tendered by postal money order or cheque is sent by post, risk may be
assumed on the date on which the money order is booked or the cheque is
posted, as the case may be. As per Section 64VB (4) of the Insurance Act, if
an insurance agent collects premium on an insurance policy on behalf of
the Insurance Company, they are mandated to deposit, dispatch by post to
the Insurance Company the premium so collected in full without deduction
of his commission, within twenty-four hours of the collection, excluding
bank and postal holiday.
57. Section 64VB(1) of the Insurance Act also provides that assumption
of risk can also be taken if premium is “ guaranteed to be paid by such
person in such manner and within such time as may be prescribed or unless
and until deposit of such amount, as may be prescribed, is made in advance
in the prescribed manner ”.
th
58. By notification dated 16 October 2002, the IRDA published the
Insurance Regulatory and Development Authority (Manner of Receipt of
Premium) Regulations, 2002 (hereinafter, ‘ IRDA Regulations ’). Regulation
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no. 3 provides the manner of premium payments, which inter alia , includes
cash, recognized negotiable instrument, postal money orders, direct
transfers, etc.
59. Regulation no.4 of the IRDA Regulations provides for
commencement of risk, which will be in consonance with the terms of
Section 64 VB of the Insurance Act, except where premium has been paid
in cash, the risk shall be after the receipt of premium by the Insurance
Company.
Liability to pay and right of recovery
60. Therefore, the question before the Court is whether the Insurance
Company will be liable to seek recovery from the insured, rather than
exoneration from payment of compensation. For this, it would be useful to
advert to the judgments cited by the parties, which are discussed as follows:
I. In Oriental Insurance Company Limited v. Inderjit Kaur (1998) 1
th
SCC 371, the insurance policy was issued on 30 November 1989,
the premium was paid by cheque which was subsequently
dishonoured. A letter communicating this was sent to the insured on
rd nd
23 January 1990. Premium was then paid in cash on 02 May
th
1990. In the meantime, the accident took place on 19 April 1990.
Insurance Company relied on Section 64VB of Insurance Act to state
that no risk was assumed. Relying upon Section 147(5) and Section
149(1) of MV Act, the Court held that once an insurance policy was
issued, the Insurance Company becomes liable to indemnify third
parties and to satisfy awards of compensation, notwithstanding that it
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could avoid or cancel the policy. The policy of insurance was held to
be a representation on which authorities and third parties were
entitled to act and therefore, the Insurance Company was not
absolved and its remedies lay against the insured.
II. The Supreme Court in New India Assurance Company Ltd. v. Rula
& Ors. (2000) 3 SCC 195 was dealing with a case where the
th
insurance policy had been issued on 08 November 1991. The
insured vehicle met with an accident around midnight on the same
day. The cheque which had been issued towards payment of
th th
premium on 08 November 1991, was dishonoured on 16
November 1991 and resultantly the insurance policy stood cancelled.
The Insurance Company relied on Section 64VB of Insurance Act
and Section 2(d), (e), (f) and (h) of Indian Contract Act, 1872
(hereinafter, ‘ ICA ’).
The Supreme Court held that, as per Chapter XI of MV Act, the third
party, who is not a signatory to the contract of insurance, is
nevertheless protected by such contract. It stated that a third party is
not concerned and does not come into the picture at all in the matter
of payment of premium. Whether the premium has been paid or not,
is not the concern of the third party. It is only concerned with the fact
that the insurance policy had been issued in respect of the offending
vehicle and on this basis, the claim petition can be maintained.
Relying upon the decision in Inderjit Kaur ( supra ), the Apex Court
held that subsequent cancellation of insurance policy on the ground
that the cheque was dishonoured, would not affect the rights of third
party, which had accrued on the issuance of the insurance policy.
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Therefore, the claimant was indemnified and the appeal filed by
Insurance Company was dismissed.
III. National Insurance Company Ltd. v. Seema Malhotra (2001) 3
SCC 151 was a case that had emanated from a claim which had been
filed before the State Consumer Commission and had been appealed
before the High Court and thereafter, it reached Supreme Court,
where the issue was regarding validity of insurance policy in case of
dishonour of the cheque given for premium.
The Court noted that there was no dispute that the Insurance
Company was liable against third parties. Though, the Insurance
Company had disputed liability, since the claim had been made by
the insured himself through his legal heirs without there being
involvement of any third party. The Court took into account the
decisions in both Inderjit Kaur ( supra ) and Rula ( supra ) and
assessed the matter on the basis of Section 64 VB of Insurance Act
and Sections 51, 52 and 54 of ICA.
The Court noted that in a contract of insurance, when the insured
gives a cheque towards payment of premium, such a contract
consists of reciprocal promise. The drawer of the cheque promises
the insurer that the cheque will yield the amount in cash on
presentation. It was noted that the Bill of Exchange is an instrument
in writing containing an unconditional order, directing someone to
pay a certain sum of money to another person and, involves a
promise that such money should be paid.
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The Court noted that when the insured fails to pay the premium
promised and when the cheque issued towards premium is returned
due to dishonour, the Insurance Company need not perform their end
of the promise. Relying upon Section 25 of ICA, the Court held that
an agreement made without consideration is void. Section 65 of ICA
provides that when a contract becomes void, any person who has
received an advantage under such contract, is bound to restore it to
the person from whom he received it.
Therefore, even if the Insurance Company has disbursed the amount
covered by the insurance policy to the insured before the cheque was
returned dishonoured, the Insurance Company is entitled to get the
amount back. However, if the insured makes up for the premium,
even after the cheque had been dishonoured, but before the date of
the accident, it would be a different case and consideration would be
treated as paid. Accordingly, the appeal of Insurance Company was
allowed.
IV. In Deddappa & Ors. v. Branch Manager, National Insurance Co.
th
Ltd. (2008) 2 SCC 595, the insurance policy was valid from 17
th
October 1997 to 16 October 1998. While the owner had made
th
payment through cheque on 15 October 1997, the same had been
st
dishonoured on 21 October 1997 due to insufficient funds and
communication of the cancellation of insurance policy had been
th
made. Thereafter, the accident occurred on 6 February 1998.
Placing reliance on the decision in Seema Malhotra ( supra ), the
Court held that while payment by cheque is ordinarily accepted as
valid payment, same is subject to the encashment. A distinction
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between statutory liability under MV Act and liability in other cases
was drawn, holding that if the contract of insurance has been
cancelled and the concerned parties have been intimated, the
Insurance Company would not be liable to satisfy the claim.
However, in the exercise of their powers under Article 142 of the
Constitution of India, 1950 (‘ Constitution ’), recovery rights had
been granted to the Insurance Company after making payment to the
claimant.
V. The factual matrix in National Insurance Company Ltd. v.
Yellamma & Anr. (2008) 7 SCC 526, was that the insured was the
owner of a mini bus and had issued a third-party cheque towards
payment of insurance premium. Inadvertently, a cover note had been
issued. It was noted that premium had not been tendered and the
original cover note was returned and the cheque had been taken
rd
back. The insurance cover was valid from 03 September 1991 to
nd
02 September 1992 and the accident in question had occurred on
th
12 September 1991.
Compensation provided by the Tribunal had been enhanced by the
High Court. Supreme Court noted that the cheque for payment of
premium had not been encashed and since no payment had been
received, Section 64VB of the Insurance Act would come into play.
Noting the decision of Supreme Court in Deddappa ( supra ), as well
as, in Seema Malhotra ( supra ), the Court noted that while the
cheque is already accepted as a valid tender, same would be subject
to its encashment.
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However, a distinction exists between statutory liability vis-a-vis
third parties in terms of Sections 147 & 149 of MV Act and liability
in other cases. But it is clear that if contract of insurance had been
cancelled and the concerned parties had been intimated, the
Insurance Company would not be liable to satisfy the claim.
However, exercising jurisdiction under Article 142 of the
Constitution, the Supreme Court directed that the awarded amount be
paid by the Insurance Company with liberty to recover it from the
owner.
VI. In National Insurance Company Ltd. v. Parvathneni (2009) 8 SCC
785, the question was regarding the dishonour of cheque which had
th
been issued towards payment of premium on 29 November 2003.
th
The accident in question occurred on 30 November 2003. While,
the Insurance Company resisted the claim, the High Court passed
directions for pay and recover. Supreme Court stated that prima facie
they were of the opinion that, if the Insurance Company is able to
prove that it has no liability to pay, it cannot be compelled to make
payment and recover it later.
The Supreme Court noted various decisions, including, Yellamma
( supra ) and stated they had some reservations about the correctness
of the decision. If the Insurance Company had no liability to pay,
then it cannot be compelled to pay the same and recover by the order
of Supreme Court under Article 142 of the Constitution. In their
view, Article 142 does not cover such type of cases. Thereafter,
directions were given for placing the papers before the Chief Justice
for the constitution of a larger bench.
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While the issue is yet to be decided, an application for impleadment
had come up before the Court in National Insurance Co. Ltd. v.
Parvathneni , (2018) 9 SCC 657, which was dismissed and so was
the Special Leave Petition (‘ SLP ’), considering that it was a meagre
amount. It was also held that the question of law raised in the
petition was kept open to be decided at an appropriate stage.
VII. In United India Insurance Company Ltd. v. Laxmamma & Ors.
th
(2012) 5 SCC 234, the accident in question occurred on 11 May
th
2004. The insurance policy had been issued on 14 April 2004, for a
th th
period of 16 April 2004 till 15 April 2005, however, the cheque for
payment of premium had been dishonoured. The policy had been
cancelled after the accident had taken place and the intimation of
st
cancellation had been sent to the owner on 21 May 2004.
Compensation was awarded by the Tribunal and affirmed by the
High Court. Insurance Company contended that the view taken by
the Supreme Court in Inderjit Kaur ( supra ) had been diluted by the
decision in Seema Malhotra ( supra ) and Deddappa ( supra ). The
Court discussed Inderjit Kaur ( supra ), Rula ( supra ) , Seema
Malhotra ( supra ) and Deddappa ( supra ) and stated as under:
“ 25. In Seema Malhotra [(2001) 3 SCC 151
: 2001 SCC (Cri) 443], the claim was by the
legal heirs of the insured for the damage to
the insured vehicle. In this peculiar fact
situation, the Court held that when the
cheque for premium returned dishonoured,
the insurer was not obligated to perform its
part of the promise. Insofar as Deddappa
[(2008) 2 SCC 595 : (2008) 1 SCC (Cri) 517
: (2008) 1 SCC (Civ) 638] is concerned, that
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was a case where the accident of the vehicle
occurred after the insurance policy had
already been cancelled by the insurance
company.
26. In our view, the legal position is this:
where the policy of insurance is issued by an
authorised insurer on receipt of cheque
towards the payment of premium and such a
cheque is returned dishonoured, the liability
of the authorised insurer to indemnify the
third parties in respect of the liability which
that policy covered subsists and it has to
satisfy the award of compensation by reason
of the provisions of Sections 147(5) and
149(1) of the MV Act unless the policy of
insurance is cancelled by the authorised
insurer and intimation of such cancellation
has reached the insured before the accident.
In other words, where the policy of insurance
is issued by an authorised insurer to cover a
vehicle on receipt of the cheque paid towards
premium and the cheque gets dishonoured
and before the accident of the vehicle occurs,
such insurance company cancels the policy
of insurance and sends intimation thereof to
the owner, the insurance company's liability
to indemnify the third parties which that
policy covered ceases and the insurance
company is not liable to satisfy awards of
compensation in respect thereof.”
(emphasis added)
In the facts of this case, the Court held that since the policy had been
cancelled by the Insurance Company after the accident, therefore, the
Insurance Company became liable to satisfy the award. However,
they were granted liberty to recover the said amounts from the
insured.
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VIII. National Insurance Co. Ltd. v. Sunita Devi & Ors. 2025 SCC
OnLine SC 1647 is a recent decision on this subject. In this case, the
nd
accident in question had occurred on 22 August 2005. The
Insurance Company had submitted that the insurance policy was
cancelled and the owner and RTO had been informed, therefore, the
policy did not subsist on the date of accident. Taking a view, Tribunal
passed the direction for pay and recover and in appeal, the High
Court did not interfere with the Tribunal’s order.
The Insurance Company placed reliance on the decisions of Supreme
Court in Seema Malhotra ( supra ), Laxmamma ( supra ) and
Deddappa ( supra ). In Sunita Devi ( supra ), there was a gap of three
months between the cancellation of the insurance policy and when
the accident had taken place. In view of the decision passed in
Deddappa ( supra ) and Laxmamma ( supra ), the Court directed that
50% amount which had already been paid to the claimants would not
be recovered through, but the Insurance Company was given liberty
to recover the same from the owner. As for the balance 50%,
claimants were held entitled to recover from the owner.
61. On the issue of pay and recovery, reliance may also be placed upon
the decision of Supreme Court in New India Assurance Co. v. Kamla ,
(2001) 4 SCC 342, where the Court was adjudicating the issue of a fake
driving license and whether the Insurance Company would be liable to pay
compensation to third parties. The Court traversed through the provisions
of MV Act, notably, Section 147 and Section 149 and held that if an
insurance policy has been issued in respect of the vehicle, the Insurance
Company will be liable to pay the said amount to third parties and recover
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such sum from the insured. Relevant observations of the Court are
extracted hereunder:
“ 21. A reading of the proviso to sub-section (4) as well
as the language employed in sub-section (5) would
indicate that they are intended to safeguard the interest
of an insurer who otherwise has no liability to pay any
amount to the insured but for the provisions contained
in Chapter XI of the Act. This means, the insurer has to
pay to the third parties only on account of the fact that
a policy of insurance has been issued in respect of the
vehicle, but the insurer is entitled to recover any such
sum from the insured if the insurer were not otherwise
liable to pay such sum to the insured by virtue of the
conditions of the contract of insurance indicated by the
policy.
22. To repeat, the effect of the above provisions is this:
when a valid insurance policy has been issued in
respect of a vehicle as evidenced by a certificate of
insurance the burden is on the insurer to pay to the
third parties, whether or not there has been any breach
or violation of the policy conditions. But the amount so
paid by the insurer to third parties can be allowed to
be recovered from the insured if as per the policy
conditions the insurer had no liability to pay such sum
to the insured.”
(emphasis added)
62. It seems from the above, that while facts relating to cancellation of
insurance policy may be different in each case, i.e. the cheque was
dishonoured before the accident or the cheque was dishonoured after the
accident, there is agreement in various Benches of the Supreme Court over
the cases cited above, that there is a rescission of the contract of insurance.
The only difference in the view, is regarding the liability of payment,
despite the rescission of contract and recovery from the insured.
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Predominantly, the Supreme Court has exercised its powers under Article
142 of Constitution to award recovery rights. Prior to the 2019 amendment,
the proviso to Section 149(4) provided for recovery of the discharge of any
liability by the Insurance Company from the insured.
63. Courts have consistently provided a right of recovery to the
Insurance Company with the primary liability of payment. In the opinion of
this Court, considering that Section 149(1)[Section 150(1) post 2019
amendment] of MV Act categorically provides that even though the
Insurance Company is entitled to avoid or cancel the policy, or has avoided
or cancelled the insurance policy, it is bound to satisfy the decree, in case a
policy of insurance/certificate of insurance has been issued, it would not be
able to wriggle out of the same purely on the basis of a statutory mandate.
64. The right of recovery is an added direction which is in the discretion
of the Court, which can be awarded relying upon Section 65 of ICA and in
view of the aspects not only provided as per the proviso to Section 149(4)
of MV Act with respect to conditions providing breach of insurance policy.
It has also been successively recognised by the Supreme Court in various
decisions, in the interest of justice, since the insured would then have
escaped liability without paying premium.
65. In furtherance to the principle of granting recovery rights, advertence
may be made to Section 65 of ICA, which states as under:
“ 65. Obligation of person who has received advantage
under void agreement, or contract that becomes void.
When an agreement is discovered to be void, or when a
contract becomes void, any person who has received
any advantage under such agreement or contract is
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Digitally Signed By:RAHUL
KUMAR CHOUDHARY
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bound to restore it, or to make compensation for it to
the person from whom he received it.”
66. Section 65 rides on the principle of restitution, whereby, the benefit
which has been received in an agreement which is later discovered to be
void has to be returned. As pithily discussed by R Yashod Vardhan in the
th
chapter on Section 65 in Pollock & Mulla’s The Indian Contract Act (15
edition) , the section aims at preventing unjust enrichment and from
preventing a party avoiding an agreement and retaining the benefits
received under it. The section embodies the principle of quantum meruit ,
which does not create a new contract between the parties, but restores the
advantage received by one party.
67. In Kuju Collieries Ltd. v. Jharkhand Mines Ltd. (1974) 2 SCC 533,
the Supreme Court elaborated upon the scope of Section 65 to cover
agreements enforceable by law, which were later discovered to be void.
Observations of the Court are extracted as under for ease of reference:
“6. We are of the view that Section 65 of the Contract
Act cannot help the plaintiff on the facts and
circumstances of this case. Section 65 reads as follows:
“When an agreement is discovered to be void, or when
a contract becomes void, any person who has received
any advantage under such agreement or contract is
bound to restore it, or to make compensation for it, to
the person from whom he received it.”
The section makes a distinction between an agreement
and a contract. According to Section 2 of the Contract
Act an agreement which is enforceable by law is a
contract and an agreement which is not enforceable by
law is said to be void. Therefore, when the earlier part
of the section speaks of an agreement being discovered
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Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
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to be void it means that the agreement is not
enforceable and is, therefore, not a contract. It means
that it was void. It may be that the parties or one of the
parties to the agreement may not have, when they
entered into the agreement, known that the agreement
was in law not enforceable. They might have come to
know later that the agreement was not enforceable. The
second part of the section refers to a contract
becoming void. That refers to a case where an
agreement which was originally enforceable and was,
therefore, a contract, becomes void due to subsequent
happenings. In both these cases any person who has
received any advantage under such agreement or
contract is bound to restore such advantage, or to
make compensation for it to the person from whom he
received it. But where even at the time when the
agreement is entered into both the parties knew that it
was not lawful and, therefore, void, there was not
contract but only an agreement and it is not a case
where it is discovered to be void subsequently. Nor is it
a case of the contract becoming void due to subsequent
happenings. Therefore, Section 65 of the Contract Act
did not apply. ”
(emphasis added)
68. Therefore, upon a collective reading of the provisions of MV Act,
MV Rules and Section 65 of ICA, this Court is of the opinion that recovery
rights can be granted to the Insurance Company, upon them satisfying the
awarded amount payable to third parties.
69. In view of the above analysis, this Court finds that the policy of
th
insurance issued by the Insurance Company, effective from 19 January
th
2014 and the accident having occurred on 10 October 2014, during the
period of its validity, applying Section 149(1) [Section 150(1) post 2019
amendment] , despite the insurer having avoided or cancelled the policy, it
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Signing Date:06.11.2026
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shall still be liable to cover the compensation awarded to the claimant.
However, as noted in paragraph no.68 above, recovery rights would have
to be granted to the insurer, since no premium was received and the insured
cannot go scot free for an insurance it never really paid for.
Guideposts
70. In view of the above discussion, the following principles can be
culled out:
i. Once the payment of premium is tendered, either through cash,
direct transfer or vide a cheque and a cover note is issued, the risk
will be assumed by the Insurance Company. This follows from a
combined reading of Section 147(4) [Section 147(5) post 2019
Amendment ], Rule 142 of MV Rules and Section 64VB of the
Insurance Act.
ii. The same process would follow, if instead of a cover note, a
policy of insurance/certificate of insurance is issued. This
emanates from a combined reading of Rule 141 of MV Rules
read with Section 147(3) [Section 147(4) post 2019 Amendment ]
and Section 64VB of Insurance Act.
iii. If cover note is issued without receipt of premium then the
Insurance Company can void the cover note within 67 days from
issuance of the cover and inform the RTO and the insured person,
otherwise it would be presumed that premium has been received.
Failure to inform would result in a presumption that the
Insurance Company does not wish to avoid the contract of
insurance and consequently, the liability. Therefore, during the
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sixty days’ period if the premium has not been received, the
Insurance Company may be entitled to cancel the cover note and
avoid liability.
iv. The Insurance Company has an implicit duty to inform the RTO,
as well as, the insured if it does not wish to issue a certificate of
insurance/policy of insurance.
v. If the Insurance Company has issued a policy of
insurance/certificate of insurance, it will continue to have a
liability to pay to the person who is entitled to the benefit of the
judgment or award, if they choose to void or cancel the policy.
This emanates from a reading of Section 149(1) [Section 150(1)
post amendment] . Pay and recovery shall be granted according to
the facts and circumstances of the case.
Quantum of compensation
71. On the issue of quantum of compensation, claimant has sought that
the functional disability be considered at 16% instead of 8% as awarded by
the MACT. Permanent disability had been certified at 16% in relation to
left lower limb, as proved by the disability certificate testified by Dr.
Hemant Sharma (‘ PW-2 ’).
72. Claimant was working as a Safari Karamchari in MCD and was
stated to be earning Rs.10,000/- per month. Claimant was examined as PW1
and he stated that the injury had curtailed his working capacity and,
therefore, he was unable to continue with his work.
73. In the cross-examination, he stated that he had been working as a
temporary employee in EDMC and had not received reimbursement of
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Digitally Signed By:RAHUL
KUMAR CHOUDHARY
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medical expenses. Regularization of his service was due and his file had
gone to higher authorities for approval. He further stated that he had come
to the Court on foot for his cross-examination.
74. No other evidence has been filed by the claimant in order to support
his plea for enhancement of the assessment of functional disability. As per
the medical documents, it was stated that the patient was admitted with
pain and swelling at multiple sides of the body, a lacerated wound over the
forehead, right-side, inability to walk and difficulty in breathing. The
operative procedure was performed on the tibia and on the fibula and the
left femur along with locking plate. Considering the nature of injuries
suffered, it seems to be a case of fractures which was dealt with by locking
plates and therefore, the claimant would have been treated for it.
75. As regards the assessment of functional disability, reliance may be
placed upon the decision of Supreme Court in Raj Kumar v. Ajay Kumar
(2011) 1 SCC 343, the Supreme Court held that the Tribunal must assess
not merely the extent of permanent disability but its actual impact on the
claimant’s earning capacity, which may differ from the medical percentage
of disability. This requires evaluating the claimant’s pre-accident vocation,
the functions affected, and whether livelihood can still be earned despite
the disability. The Court emphasised that disability and loss of earning
capacity are distinct concepts, except in cases where evidence shows they
coincide. Relevant paragraphs are extracted as under:
“ 11. What requires to be assessed by the Tribunal is
the effect of the permanent disability on the earning
capacity of the injured; and after assessing the loss of
earning capacity in terms of a percentage of the
income, it has to be quantified in terms of money, to
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arrive at the future loss of earnings (by applying the
standard multiplier method used to determine loss of
dependency). We may however note that in some cases,
on appreciation of evidence and assessment, the
Tribunal may find that the percentage of loss of
earning capacity as a result of the permanent
disability, is approximately the same as the percentage
of permanent disability in which case, of course, the
Tribunal will adopt the said percentage for
determination of compensation. (See for example, the
decisions of this Court in Arvind Kumar Mishra v. New
India Assurance Co. Ltd. [(2010) 10 SCC 254 : (2010)
3 SCC (Cri) 1258 : (2010) 10 Scale 298] and Yadava
Kumar v. National Insurance Co. Ltd. [(2010) 10 SCC
341 : (2010) 3 SCC (Cri) 1285 : (2010) 8 Scale 567] )
12. Therefore, the Tribunal has to first decide whether
there is any permanent disability and, if so, the extent
of such permanent disability. This means that the
Tribunal should consider and decide with reference to
the evidence:
(i) whether the disablement is permanent or
temporary;
(ii) if the disablement is permanent, whether it is
permanent total disablement or permanent partial
disablement;
(iii) if the disablement percentage is expressed with
reference to any specific limb, then the effect of such
disablement of the limb on the functioning of the
entire body, that is, the permanent disability suffered
by the person.
If the Tribunal concludes that there is no permanent
disability then there is no question of proceeding
further and determining the loss of future earning
capacity. But if the Tribunal concludes that there is
permanent disability then it will proceed to ascertain
its extent. After the Tribunal ascertains the actual
extent of permanent disability of the claimant based on
the medical evidence, it has to determine whether such
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KUMAR CHOUDHARY
Signing Date:06.11.2026
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permanent disability has affected or will affect his
earning capacity.
13. Ascertainment of the effect of the permanent
disability on the actual earning capacity involves three
steps. The Tribunal has to first ascertain what
activities the claimant could carry on in spite of the
permanent disability and what he could not do as a
result of the permanent disability (this is also relevant
for awarding compensation under the head of loss of
amenities of life). The second step is to ascertain his
avocation, profession and nature of work before the
accident, as also his age. The third step is to find out
whether (i) the claimant is totally disabled from
earning any kind of livelihood, or (ii) whether in spite
of the permanent disability, the claimant could still
effectively carry on the activities and functions, which
he was earlier carrying on, or (iii) whether he was
prevented or restricted from discharging his previous
activities and functions, but could carry on some other
or lesser scale of activities and functions so that he
continues to earn or can continue to earn his
livelihood. ”
(emphasis added)
76. Accordingly, at best, functional disability will be enhanced to 10%.
77. As regards non-pecuniary damages, MACT awarded Rs. 1,00,000/-
towards pain and suffering, which is sustained by this Court. However,
compensation awarded under the head of loss of amenities of life may be
enhanced, considering the nature and extent of the injuries to Rs. 1,00,000/-
78. Accordingly, the revised computation is as under:
S. no. Heads Awarded by the
Awarded by
Tribunal
this Court
PECUNIARY LOSS
1. Expenditure on Medical Rs. 4,94,563/- Rs. 4,94,563/-
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Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
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Bills and medical treatment
(A)
2. Expenditure on conveyance
& special diet (B)
Rs. 15,000/- Rs. 15,000/-
3. Attendant Charges (C) Rs. 15,000/- Rs. 15,000/-
4. Income of injured per
month (D)
Rs.8,632 Rs. 8,632/-
5. Add: Future prospects (E) Rs. 3,315/-* Rs. 3,453/-
6. Loss of income (F) Rs. 25,896/- Rs. 25,896/-
7. Multiplier (G) 15 15
8. Functional disability (H) 8% 10%
9. Loss of future
income/future earnings
[(D+E) x 12 x G x H] = (I)
Rs. 1,74,030/- Rs. 2,17,530/-
NON-PECUNIARY LOSS
10. Pain and suffering (J) Rs. 1,00,000/- Rs. 1,00,000/-
11. Loss of amenities of life
and future prospects (K)
Rs. 40,000/- Rs. 1,00,000/-
12. Mental and physical shock
(L)
Rs. 35,000/- Rs. 35,000/-
13. Disfigurement (K) Rs. 25,000/- Rs. 25,000/-
14. Total compensation (A + B
+ C + F + I+ J+ K + L +
K)= (M)
Rs. 9,25,000/-
Rs. 10,28,000/-
(rounded off
Rs. 9,24,489/-)
(rounded off
Rs. 10,27,989/-)
15. Interest awarded 9% per annum 9% per annum
16. Enhanced compensation Rs. 1,03,000/-
*Future prospects wrongly added at a later stage
Conclusion
79. For the aforesaid reasons, compensation has been enhanced by
Rs.1,03,000 /- [“ enhanced amount ”].
80. Enhanced amount along with 9% interest per annum from the date of
filing the petition shall be deposited before MACT within a period of four
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Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
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weeks by the Insurance Company, which shall be released as lumpsum
within two weeks thereafter.
th
81. By order dated 9 July 2018, this Court had directed the Insurance
Company to deposit the entire originally awarded amount before MACT,
th
and by order dated 11 November 2022, 50% of the said amount had been
released to the claimant. The balance compensation amount shall continue
to be released as per the terms of impugned award.
82. In view of the above discussion, this Court does not intercede with
the observation made by MACT in paragraph no. 23 whereby, rights of
recovery against the driver and owner have been granted to the Insurance
Company. Accordingly, the recovery rights granted by the MACT are
upheld.
83. Accordingly, the appeals stand disposed of with above directions.
84. Pending applications, if any, are rendered infructuous.
85. Copy of this judgement be sent to concerned MACT.
86. Copy of this judgement shall also be sent to concerned bank.
87. Statutory deposit, if any, shall be refunded to Insurance Company,
only if the order of deposit has been complied with.
88. Judgment be uploaded on the website of this Court.
(ANISH DAYAL)
JUDGE
NOVEMBER 6, 2026/ ak/ sp
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Digitally Signed By:RAHUL
KUMAR CHOUDHARY
Signing Date:06.11.2026
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