Absence of permit and fitness certificate constitutes fundamental breach, warranting pay-and-recover against insurer.

On 11.11.2013, Bhupinder was travelling in Tata Sumo bearing registration No. HP-01K-0404, driven by Raj Kumar. Near Kowaji Mor, Shour, the vehicle went off the road and fell into a gorge due to the driver’s rash and negligent driving, resulting in Bhupinder’s death.

His legal representatives filed a claim petition under Section 166 of the Motor Vehicles Act, 1988, seeking compensation of ₹15,00,000. The Motor Accidents Claims Tribunal awarded ₹8,08,200 with interest at 7.5% per annum and directed the Insurance Company to indemnify the award.

In appeal, the Insurance Company contended that the vehicle, a transport vehicle, was being operated without a valid permit and fitness certificate, in breach of the insurance policy. Evidence from the RTO established that the vehicle’s fitness certificate had expired on 06.07.2005 and its contract carriage permit on 07.08.2008, whereas the accident occurred on 11.11.2013.

1. Whether a transport vehicle could lawfully be operated in a public place without a valid permit under the Motor Vehicles Act, 1988.

2. Whether operation of the transport vehicle without a valid fitness certificate constituted a breach of the insurance policy and a fundamental statutory infraction.

3. Whether, despite the insurer’s defence being established, the Insurance Company should first satisfy the compensation award and be granted liberty to recover the amount from the vehicle owner.

Section 66 of the Motor Vehicles Act, 1988 requires a transport vehicle to be operated in a public place only in accordance with a valid permit, subject to statutory exceptions.

In National Insurance Co. Ltd. v. Challa Bharathamma, (2004) 8 SCC 517, the Supreme Court held that plying a vehicle without a permit is an infraction and constitutes a defence available to the insurer under Section 149(2), while permitting a “pay and recover” direction.

Amrit Paul Singh v. TATA AIG General Insurance Co. Ltd., (2018) 7 SCC 558, characterises use of a vehicle in a public place without a permit as a fundamental statutory infraction and supports payment by the insurer followed by recovery from the insured.

Sections 39 and 56 provide that a transport vehicle must be registered and must carry a valid certificate of fitness; under Section 56(1), a transport vehicle without a fitness certificate is not deemed validly registered for purposes of Section 39.

The Court also relied on Pareed Pillai v. Oriental Insurance Co. Ltd., AIR 2019 Kerala 9, which treats the absence of a permit or fitness certificate in respect of a transport vehicle as a fundamental, rather than technical, breach.

The “pay and recover” principle was further supported by Shamanna v. Divisional Manager, Oriental Insurance Co. Ltd., (2018) 9 SCC 650.

The vehicle was admittedly a transport vehicle, and the RTO evidence demonstrated that both its permit and fitness certificate had expired long before the accident. The owner neither pleaded nor proved that any statutory exception under Section 66 applied.

Since Section 66 prohibits the use of a transport vehicle without a permit, and Sections 39 and 56 require a valid fitness certificate as a condition of lawful registration and operation, the vehicle was being used in fundamental violation of the statute and the insurance-policy conditions.

Accordingly, the Tribunal erred in fastening final liability on the Insurance Company. Nevertheless, considering the beneficial object of the Motor Vehicles Act and the Supreme Court’s “pay and recover” doctrine, the Court held that the insurer should first pay the awarded compensation to the claimants and thereafter recover it from the owner.

However, the Insurance Company was directed to first satisfy the award of ₹8,08,200 with the applicable interest and was granted liberty to recover the entire amount from the owner in accordance with law.

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