Permit overloading does not defeat the insurer’s liability for a passenger covered by the policy.

On 11 October 2004, Mathura Prasad died in a motor accident involving Jeep No. M.P.-17-A-5096, driven by respondent No. 2, owned by respondent No. 1, and insured with the appellant-Insurance Company.

The legal representatives of the deceased filed a claim petition under Section 166 of the Motor Vehicles Act, 1988.

The Claims Tribunal awarded Rs. 4,21,000/- with interest at 6% per annum and directed that, in case of non-payment within 60 days, interest would increase to 9% per annum.

The Insurance Company appealed, seeking exoneration on the ground that the vehicle was carrying 16–17 passengers although its permit authorised carriage of only 9 passengers, and also challenged the imposition of the enhanced or “penal” interest.

The insurance policy, however, covered the risk of 18 passengers.

Whether the Insurance Company was liable to indemnify the claim arising from the death of Mathura Prasad notwithstanding that the vehicle was carrying more passengers than permitted under its permit.

Whether the Claims Tribunal could direct payment of interest at 9% per annum if the compensation was not deposited within 60 days of the award.

The Court considered Sections 147 and 149 of the Motor Vehicles Act, 1988, under which compulsory insurance covers third-party risks and the insurer’s liability is governed by the statutory and contractual extent of coverage.

A vehicle carrying passengers beyond the number authorised by its registration certificate or permit is being used in violation of the statutory permit conditions; under National Insurance Co. Ltd. v. Anjana Shyam, AIR 2007 SC 2870, the insurer is ordinarily liable only for the permitted and insured number of passengers, although the compensation may be apportioned through the mechanism prescribed in that decision.

The Court also relied on United India Insurance Co. Ltd. v. K.M. Poonam, 2011 AIR SCW 2802, which permits the insurer to pay the awards and recover from the owner amounts exceeding its policy liability, where necessary to protect claimants.

On interest, National Insurance Co. Ltd. v. Keshav Bahadur, (2004) 2 SCC 370, establishes that the law does not authorise imposition of penal interest merely for failure to deposit compensation within a specified period.

The Court accepted that the vehicle had violated its permit because it carried 16–17 passengers despite being authorised to carry only 9.

Nevertheless, the Insurance Company’s policy covered 18 passengers, and the present claim related to the death of one passenger, Mathura Prasad.

Applying the principles in Anjana Shyam and K.M. Poonam, the Court held that the claim fell within the insurance coverage and that the insurer could not be exonerated in respect of this individual claim.

The Court separately found that the Tribunal’s direction increasing interest from 6% to 9% after 60 days was penal in nature and lacked legal basis; accordingly, that condition could not be sustained.

The award was affirmed insofar as it required the Insurance Company to indemnify the compensation awarded for the death of Mathura Prasad, notwithstanding the violation of the passenger-capacity condition in the permit.

However, the direction imposing interest at 9% per annum if payment was not made within 60 days was set aside, while the award of interest at 6% per annum remained undisturbed.