Insurers must pay first and recover only after hearing the vehicle owner on alleged permit violations.

On 14 December 2022 at approximately 3:30 a.m., Tapasi Halder was travelling as a passenger in bus no. WB-19L-1956 from Purulia towards her residence. The bus was allegedly driven at excessive speed and in a rash and negligent manner, overturned near Ilahipur More under Haripal Police Station, and fell into a roadside canal. Tapasi sustained serious injuries and was declared dead at Haripal Gramin Hospital.

Her legal representatives filed a claim petition under Section 166 of the Motor Vehicles Act, 1988. The vehicle owner did not contest the proceedings, while National Insurance Company Ltd. contested the claim. The Tribunal awarded ₹18,29,940 with interest at 6% per annum from the date of filing of the claim petition and directed the insurer to satisfy the award.

The insurer appealed, challenging the assessment of Tapasi’s monthly income at ₹10,000 and seeking liberty to recover the compensation from the vehicle owner on the ground of breach of the route-permit condition. The claimants filed a cross-objection seeking enhancement of the compensation on the basis that Tapasi’s monthly income was ₹15,000.

1. Whether the deceased Tapasi Halder’s monthly income should be assessed at ₹15,000 rather than ₹10,000 for determining loss of dependency?

2. Whether the claimants were entitled to enhancement of the compensation awarded by the Tribunal?

3. Whether the insurer was entitled to satisfy the award first and thereafter recover the compensation from the vehicle owner because of an alleged violation of the route-permit condition?

4. Whether the insurer could obtain recovery without first conducting an enquiry and affording the vehicle owner an opportunity of being heard regarding the alleged policy breach?

The Court applied Section 166 of the Motor Vehicles Act, 1988, governing claims for compensation arising from motor vehicle accidents. For quantifying loss of dependency, it applied the conventional deduction of one-third towards the deceased’s personal expenses, addition of 40% towards future prospects, and the multiplier method, applying a multiplier of 15 in the present case.

The Court further applied the principle that, where there is a proved breach of an insurance policy condition, including breach relating to a permit, the insurer may be directed to pay the third-party compensation first and recover it from the insured in accordance with law.

Relying on National Insurance Co. Ltd. v. Lirasa Bibi, FMA No. 1003 of 2025, and Reliance General Insurance Co. Ltd. v. Niyati Kumar & Ors., FMA No. 1326 of 2025, 2025 SCC OnLine Cal 8886, the Court held that the insurer must establish the policy breach and, before pursuing recovery, conduct an enquiry, issue notice to the vehicle owner, and provide an opportunity of hearing to determine whether the breach was bona fide, minor, or deliberate and fundamental.

The Court accepted the claimants’ evidence regarding Tapasi’s income. P.W. 1 consistently stated that she was employed as a manager at Halder Engineering and earned ₹15,000 per month, while P.W. 2, the proprietor of Halder Engineering Works, corroborated her employment and salary. The computer-generated trade licence and the evidence regarding the business further supported the claimants’ case.

Accordingly, the Court calculated the monthly income after one-third deduction at ₹10,000, added 40% for future prospects to arrive at ₹14,000 per month, and determined the annual income at ₹1,68,000. Applying the multiplier of 15 resulted in a dependency loss of ₹25,20,000; with ₹70,000 under conventional heads, the arithmetical total was ₹25,90,000. The Court, however, considered ₹25,00,000 to be just and reasonable compensation.

On the route-permit issue, the Court held that the insurer could not avoid its obligation to third-party claimants merely by alleging a policy breach. Since the insurer was required to satisfy the award first, it could seek recovery from the vehicle owner only after following due process.

The vehicle owner had not contested the claim and had not been examined regarding the alleged permit violation. Therefore, before instituting recovery proceedings, the insurer was directed to issue notice, conduct an enquiry, and give the owner an opportunity to explain whether the breach was bona fide or deliberate. A reasoned decision was thereafter required to be communicated to the owner.

The insurer was directed to deposit the amount, after giving credit for any amount already deposited, before the Registrar General of the High Court within eight weeks from communication of the order. The claimants were permitted to withdraw the compensation upon completion of the requisite formalities.

The insurer was granted liberty to recover the compensation from the vehicle owner only after following the procedure laid down in National Insurance Co. Ltd. v. Lirasa Bibi, including notice, enquiry, opportunity of hearing, and a reasoned determination of the alleged permit breach.