Cyclist Hit By Mini-Bus Gets ₹10.28 Lakh As Delhi HC Holds Insurer Liable Despite Pre-Crash Cancellation After Cheque Bounced, Allows Recovery From Owner And Driver

In brief

The question

Whether an insurer must satisfy a third-party award where it issued a policy of insurance but the premium cheque was dishonoured and the policy was cancelled before the accident.

The court held

The Court dismissed the insurer’s challenge to its liability and upheld the MACT’s recovery rights against the driver and owner.

It also directed

It partly allowed Sanjay’s appeal, enhancing compensation by ₹1,03,000 to ₹10,28,000, with interest at 9% per annum. The insurer was directed to deposit the enhanced amount, with interest from the date of filing the claim, within four weeks; the amount was to be released as a lump sum within two weeks thereafter.

01Facts

Sanjay was injured when a mini-bus struck his bicycle on 10 October 2014. The insurer had issued an insurance policy for the vehicle, effective from 19 January 2014, but the cheque for the premium was dishonoured on 17 January 2014. The insurer cancelled the policy and notified the vehicle owner and the RTO before the accident.

¶ 4, 9–12 · pp. 3–6

The MACT directed the insurer to pay compensation of ₹9,25,000 with 9% interest, while granting it recovery rights against the driver and owner. The insurer appealed, seeking exoneration; Sanjay cross-appealed, seeking enhanced compensation.

¶ 2, 6–7 · pp. 3–4

02Issues

i.Whether an insurer must satisfy a third-party award where it issued a policy of insurance but the premium cheque was dishonoured and the policy was cancelled before the accident.

¶ 17, 38–41, 60–70 · pp. 7–8, 20–21, 27–41

ii.Whether, in those circumstances, the insurer is entitled to recover the amount paid from the insured and/or the driver.

¶ 62–70 · pp. 36–41

iii.Whether the Tribunal’s assessment of compensation should be enhanced, including its assessment of functional disability and non-pecuniary loss.

¶ 71–78 · pp. 41–45

03Law Applied

The Court applied Sections 145, 147(3), 149(1) and 149(4) of the Motor Vehicles Act, 1988, as applicable before the 2019 amendment.

¶ 30–34, 60–68 · pp. 12–19, 27–39

It held that issuing a policy or certificate of insurance triggers the insurer’s statutory obligation under Section 149(1) to satisfy a third-party award, notwithstanding the insurer’s entitlement to avoid or cancel the policy; where the premium was not received and the policy was cancelled, the insurer may be granted recovery rights.

¶ 30–34, 60–68 · pp. 12–19, 27–39

The Court also considered Section 64VB of the Insurance Act, 1938, concerning assumption of risk and receipt of premium; Rules 141–143 of the Central Motor Vehicles Rules, 1989, concerning certificates of insurance and cover notes; and Section 65 of the Indian Contract Act, 1872, concerning restitution of an advantage received under a void contract.

¶ 30–34, 60–68 · pp. 12–19, 27–39

It relied, among other authorities, on Oriental Insurance Co. Ltd. v. Inderjit Kaur, New India Assurance Co. Ltd. v. Rula, United India Insurance Co. Ltd. v. Laxmamma, and New India Assurance Co. v. Kamla on the insurer’s third-party obligations and recovery rights, and Raj Kumar v. Ajay Kumar on assessing functional disability by its effect on earning capacity.

¶ 30–34, 60–68, 75 · pp. 12–19, 27–39, 42–44

Provisions in the judgment · 15 · Linked ones open on LawLens

Indian Penal Code, 1860 Section 279 Section 338

Motor Vehicles Act, 1988 Section 145 Section 146 Section 147 Section 149 Section 150 Section 163 Section 164

Indian Contract Act, 1872 Section 2 Section 25 Section 51 Section 52 Section 54 Section 65

04Reasoning

The insurer had issued a policy covering the vehicle for a period that included the accident date. The Court held that, under Section 149(1), issuance of the policy—not the eventual receipt of premium—triggered the insurer’s duty to satisfy the third-party award, even though the insurer had cancelled the policy and notified the owner before the accident. The insurer could therefore not avoid payment to Sanjay, but recovery rights were justified because the premium had not been received.

¶ 38–41, 63–70 · pp. 20–21, 37–41

On quantum, the Court found insufficient evidence to equate the claimant’s 16% lower-limb disability with a 16% loss of earning capacity. It raised functional disability from 8% to 10% and increased compensation for loss of amenities.

¶ 71–78 · pp. 41–45