Insurer remains liable for third-party claims unless policy cancellation reached the insured before the accident.

The appellant, a pillion rider, sustained grievous injuries in an accident on 20 March 2015 involving motorcycle No. AS-12-H-4885, owned and ridden by Respondent No. 2 and insured by ICICI Lombard Motor Insurance Co. Ltd.

The Motor Accident Claims Tribunal awarded the appellant ₹3,57,467 with interest at 7.5% per annum, but directed the owner alone to satisfy the award after accepting the insurer’s case that the premium cheque had been dishonoured and the policy cancelled.

The insurer relied on letters allegedly intimating the owner and the Regional Transport Authority of the cancellation, but neither the dishonoured cheque nor proof of delivery or acknowledgment of those letters was produced.

The claimant appealed under Section 173 of the Motor Vehicles Act, seeking modification of the award so as to make the insurer liable.

1. Whether a claimant is an “aggrieved person” entitled to appeal under Section 173 of the Motor Vehicles Act when compensation has been awarded but liability has been placed exclusively on the vehicle owner rather than the insurer?

2. Whether the insurer can avoid third-party liability on the ground that the premium cheque was dishonoured and the policy was cancelled, when it failed to prove that cancellation was communicated to and received by the insured before the accident?

Section 173(1) of the Motor Vehicles Act permits an appeal by any person aggrieved by an award; a claimant is aggrieved where the award places exclusive liability on the owner instead of the insurer because the claimant has a legitimate interest in securing satisfaction from the insurer.

Under United India Insurance Co. Ltd. v. Laxmamma, 2012 (5) SCC 234, an insurer ordinarily remains liable to third parties despite dishonour of the premium cheque, unless it cancelled the policy and the cancellation intimation reached the insured before the accident.

The burden of proving dishonour, cancellation, and effective communication rests on the insurer; mere production or exhibition of intimation letters is insufficient without proof of receipt.

The Court also relied on United India Insurance Co. Ltd., Kurnool v. Boya Siva Kumar, 2006 (3) TAC 278 (AP), which treated dishonour of the cheque and communication of cancellation as facts requiring satisfactory proof.

The appeal was maintainable because the claimant challenged not the quantum of compensation but the allocation of liability, and had a legitimate interest in obtaining payment from the insurer, particularly since the owner had not contested the claim.

Although the insurer asserted that the policy was cancelled after dishonour of the premium cheque, it did not produce the dishonoured cheque, postal receipts, acknowledgment, tracking report, or testimony from the owner or the Regional Transport Authority proving receipt of the cancellation notices.

Consequently, the insurer failed to establish the exception recognised in Laxmamma: that cancellation had been effectively communicated to the insured before the accident.

Internal cancellation of the policy, without proof of prior communication, could not defeat the claimant’s statutory third-party protection.

The Tribunal’s judgment dated 18 May 2018 was modified to the extent that ICICI Lombard Motor Insurance Co. Ltd. was held liable to satisfy the compensation of ₹3,57,467, together with interest at 7.5% per annum as awarded by the Tribunal.

The appeal was accordingly allowed, and the trial court records were directed to be returned.