Absence of permit and fitness certificate constitutes a fundamental breach; insurer must pay and recover.

On 11.11.2013, Raj Kumar was driving Tata Sumo No. HP-01K-0404 when, allegedly due to a mechanical fault, the vehicle went off the road and fell into a gorge, causing his death.

His legal representatives filed a claim petition under Section 163-A of the Motor Vehicles Act, 1988, claiming compensation of ₹10,00,000.

The Motor Accidents Claims Tribunal awarded ₹4,50,000 with interest at 9% per annum and directed the Insurance Company to indemnify the award.

The Insurance Company appealed, contending that the vehicle was being operated without a valid permit and fitness certificate, in breach of the insurance policy.

1. Whether the owner of a transport vehicle could lawfully ply it in a public place without a valid permit under Section 66 of the Motor Vehicles Act, 1988.

2. Whether a transport vehicle could be operated without a valid fitness certificate under Sections 39 and 56 of the Motor Vehicles Act, 1988.

3. Whether the absence of a valid permit and fitness certificate constituted a fundamental breach of the insurance policy, and if so, whether the insurer was entitled to recover the compensation from the owner after paying the claimants.

Section 66 of the Motor Vehicles Act requires a transport vehicle to be used in a public place only in accordance with a valid permit; plying such a vehicle without a permit constitutes an infraction for which the insurer may raise a statutory defence under Section 149(2), as held in National Insurance Co. Ltd. v. Challa Bharathamma, (2004) 8 SCC 517.

Under Sections 39 and 56, a transport vehicle without a valid fitness certificate is not deemed to be validly registered and cannot lawfully be driven or permitted to be driven.

Relying on Amrit Paul Singh v. TATA AIG General Insurance Co. Ltd., (2018) 7 SCC 558, the Court held that use of a transport vehicle without a permit is a fundamental statutory infraction and applied the pay-and-recover principle.

The Court also relied on Pareed Pillai v. Oriental Insurance Co. Ltd., AIR 2019 Kerala 9, for the principle that absence of a permit or fitness certificate is a fundamental, not technical, breach, and on Shamanna v. Divisional Manager, Oriental Insurance Co. Ltd., (2018) 9 SCC 650, regarding payment by the insurer followed by recovery from the insured.

The vehicle was admittedly a transport vehicle. The Insurance Company examined an official from the RTO, who established that its fitness certificate was valid only until 06.07.2005 and its contract-carriage permit only until 07.08.2008, whereas the accident occurred on 11.11.2013.

The owner neither pleaded nor proved any statutory exception under Section 66.

Applying Sections 39, 56 and 66, the Court concluded that the vehicle was being operated without both a valid permit and fitness certificate, amounting to a fundamental breach of the policy and statutory requirements.

Nevertheless, considering the beneficial object of the Motor Vehicles Act and the Supreme Court’s pay-and-recover jurisprudence, the insurer was required to satisfy the award initially, with liberty to recover the amount from the owner.

However, the Insurance Company was directed to first pay the awarded sum of ₹4,50,000 with applicable interest to the claimants and was granted liberty to recover the amount from the owner of vehicle No. HP-01K-0404 in accordance with law.

The remaining terms of the Tribunal’s award, including the interest component, were maintained.