Operating vehicle outside permitted route justifies "pay and recover" direction against the insurer.

The Appellant Insurance Company challenged the award dated 29.04.2017 passed by the Motor Accident Claims Tribunal (MACT), Jabalpur, in Claim Case No. 127/2013

The accident occurred on 24.02.2013 involving a bus (MP-20-PA-0553) which, at the time of the incident, was found to be operating without a valid permit for the specific route (Devlapar to Nagpur)

The MACT found a fundamental breach of policy conditions but applied the "pay and recover" principle, directing the insurer to satisfy the award and subsequently recover the amount from the owner (Respondent No. 1)

The Appellant sought total exoneration, while the owner filed cross-objections arguing that a mere change in route did not constitute a breach

1. Whether the Insurance Company can be exonerated from liability when the offending vehicle is operated in violation of permit conditions, or if the "pay and recover" principle applies to protect third-party claimants

2. Whether operating a vehicle on a route not authorized by the permit constitutes a fundamental breach of the insurance policy terms

The Court primarily applied Section 173(1) of the Motor Vehicles Act, 1988 regarding appeals

It relied heavily on the "pay and recover" doctrine established by the Supreme Court in National Insurance Co. Ltd. v. Swaran Singh (2004) 3 SCC 297, which holds that insurers must satisfy third-party claims initially and then recover from the insured in cases of policy breach

The Court further applied the recent precedent in K. Nagendra v. The New India Insurance Co. Ltd. (2025 SCC OnLine SC 2297), which clarified that accidents occurring outside the bounds of a permit necessitate the application of "pay and recover" to balance the interests of the victim against the contractual limits of the insurer

The Court analyzed the evidence and confirmed the Tribunal’s finding that the offending bus lacked a valid permit for the Devlapar-Nagpur route at the time of the accident

Following the rationale in K. Nagendra, the Court reasoned that denying compensation to a third-party victim due to a permit deviation would be "offensive to the sense of justice," as the victim is not at fault for the breach

The Court also acknowledged that an insurer cannot be expected to bear the ultimate financial burden for risks outside the "four corners" of the insurance contract

Regarding the owner’s cross-objection, the Court held that a permit is only valid for the routes authorized therein; operation on an unauthorized route is a statutory and contractual violation

The Court affirmed the Tribunal's award, holding that the Insurance Company is liable to pay the compensation to the claimants in the first instance and is entitled to recover the said amount from the owner (Respondent No. 1) due to the permit violation

The Tribunal’s record was ordered to be returned immediately