Premium-cheque dishonour does not absolve the insurer absent proof that cancellation was communicated to the vehicle owner.

On 10 January 2005, the claimant was injured when an unregistered Tata Sumo collided with his bullock cart.

He sought compensation in M.C.O.P. No. 65 of 2006.

The insurer contended that the vehicle owner’s premium cheque had been dishonoured, the policy cancelled, and the owner notified; the Tribunal rejected that defence, held the insurer liable, and awarded ₹76,000 with interest at 7.5% per annum.

The insurer appealed under Section 173 of the Motor Vehicles Act, 1988, challenging the finding that it remained liable.

Whether the insurer established that the vehicle owner was duly notified of the dishonour of the premium cheque and the consequent cancellation of the policy, so as to avoid liability to the third-party claimant.

Whether the Tribunal’s award fastening liability on the insurer warranted interference.

The appeal was brought under Section 173 of the Motor Vehicles Act, 1988.

The Court applied the principle that when an insurer seeks to avoid liability on the ground that a policy was cancelled following dishonour of the premium cheque, it must establish that the dishonour and cancellation were duly communicated to the vehicle owner; absent satisfactory proof of that communication, the insurer cannot avoid its statutory liability to third-party victims.

The insurer relied on * (2008) 2 TN MAC 138 (SC)* and unreported decisions of the High Court, but the Court found them unhelpful on the facts because due communication had not been established.

The Court examined the documentary evidence, including Exs. P5 and R2, R4 to R7, and the testimony of R.W.1.

It found no satisfactory evidence that the owner had received notice of the cheque’s dishonour and the policy’s cancellation.

R.W.1’s evidence alone did not prove due communication.

Applying the requirement that the insurer establish such communication before avoiding third-party liability, the Court upheld the Tribunal’s finding and rejected the insurer’s appeal.

The insurer was directed to deposit the award amount, accrued interest and costs, if not already deposited; the claimant may withdraw the amount in accordance with the Tribunal’s apportionment.

No costs were awarded, and the connected miscellaneous petition was closed.