Dishonoured premium cheque does not extinguish insurer’s third-party liability absent proved cancellation intimation.

On 26 December 2018, S. Sai Aravind was riding his motorcycle on GST Road, Chrompet, Chennai, when a tipper lorry driven rashly and negligently struck the motorcycle from behind, causing him grievous injuries.

The lorry was allegedly covered under Policy No. 421010/31/18/014699 issued by Shriram General Insurance Co. Ltd. for the period from 30 March 2018 to 29 March 2019.

The owner of the lorry was set ex parte before the Motor Accident Claims Tribunal.

The insurer contended that the policy premium cheque was dishonoured for insufficient funds and that the policy was consequently cancelled before the accident; it therefore denied liability.

The Tribunal nevertheless held the insurer liable, finding that cancellation and its communication to the owner and the Regional Transport Office had not been satisfactorily proved.

It awarded the claimant Rs.32,52,530, including Rs.30,04,930 towards medical expenses and Rs.1,60,000 for 32% permanent disability.

The insurer filed CMA No.1992 of 2026 seeking dismissal of the claim, while the claimant filed CMA No.1002 of 2026 seeking enhancement of compensation.

Whether the insurer established that the premium cheque was dishonoured and that cancellation of the policy was duly communicated to the vehicle owner and the RTO before the accident, so as to avoid liability towards the third-party claimant?

Whether the compensation awarded by the Tribunal required enhancement, particularly under the heads of pain and suffering, transportation, and attendant charges?

Whether the claimant was entitled to compensation for functional disability or loss of earning capacity by applying the multiplier method, beyond the amount awarded for 32% medical disability?

The Court considered Section 64VB of the Insurance Act, 1938, under which an insurer is not ordinarily liable where the premium has not been received, including where a premium cheque is dishonoured.

However, the Court applied the third-party protection principle recognised in Oriental Insurance Co. Ltd. v. Inderjit Kaur, 1998 (1) SCC 371, that an insurer may avoid the policy as against the insured but remains liable to third parties unless effective cancellation and communication are established.

It relied on Section 27 of the General Clauses Act, 1897, under which properly addressing, pre-paying and posting a notice by registered post may raise a presumption of service, as explained in Prasanna B. v. Kabeer, 2019 (1) TN MAC 274 (FB) (Ker.).

For quantum, the Court applied M. Chinnathambi v. S. Deepa, 2020 (1) TN MAC 617, awarding Rs.5,000 per percentage of disability for accidents occurring from 2016 onwards.

K.S. Muralidhar v. R. Subbulakshmi, 2024 SCC OnLine SC 3385, concerning reasonable compensation for pain and suffering.

Kajal v. Jagdish Chand, 2020 INSC 135, concerning attendant charges for prolonged treatment and care.

The Court accepted that the insurer produced documents relating to the cheque, its return memo, and purported cancellation notices.

However, the evidence showed that the policy had been issued before the cheque was presented, and the insurer failed to produce satisfactory proof that cancellation and dishonour had been duly served on the owner and the RTO.

The insurer’s witness admitted that the original cheque and acknowledgments of service had not been produced.

In the absence of reliable proof of communication before the accident, the claimant, as a third party, could not be deprived of compensation.

Applying the principle in Inderjit Kaur, the Court held that the insurer remained liable to satisfy the award.

On quantum, the Court found that the claimant had undergone inpatient treatment for 42 days and surgery.

It upheld the award of Rs.1,60,000 for 32% disability, finding no sufficient evidence of functional disability or loss of earning capacity warranting application of the multiplier method.

It enhanced pain and suffering from Rs.30,000 to Rs.1,00,000, transportation from Rs.4,000 to Rs.5,000, and attendant charges from Rs.12,600 to Rs.63,000 at Rs.1,500 per day for 42 days.

The awards for medical expenses, extra nourishment, damage to clothes, loss of amenities and loss of earnings were maintained.

Accordingly, the insurer remained liable to satisfy the third-party compensation claim.

CMA No.1992 of 2026 filed by Shriram General Insurance Co. Ltd. was dismissed.

CMA No.1002 of 2026 filed by the claimant was partly allowed.

The compensation was enhanced from Rs.32,52,530 to Rs.33,74,000, with the manner and mode of disbursement to remain governed by the Tribunal’s order.

No costs were awarded.