Statutory Duty to Pay and Recover Persists Under Sections 150(1) and 150(2) Post-2019 Amendment

Various insurance companies filed statutory appeals under Section 173 of the Motor Vehicles Act, 1988, challenging awards passed by Motor Accident Claims Tribunals (MACT).

In each case, the Tribunal found a policy violation—such as the driver lack of a valid license, driving under the influence of alcohol, or plying without a permit—but nonetheless directed the insurers to pay compensation to the third-party claimants and subsequently recover the amount from the insured (the "pay and recover" doctrine).

The insurers argued that the Motor Vehicles (Amendment) Act, 2019, which substituted Chapter XI and replaced Section 149 with Section 150, deliberately omitted the proviso to Section 149(4) and Section 149(5) that previously formed the statutory basis for the "pay and recover" doctrine.

Section 150(1) of the Motor Vehicles Act, 1988 (as amended in 2019), which mandates that insurers satisfy judgments/awards against the insured "notwithstanding" their entitlement to avoid or cancel the policy.

Section 150(6) Explanation (c), which encompasses liabilities that would be covered but for the insurer’s right to avoid the policy.

National Insurance Co. Ltd. v. Swaran Singh (2004) 3 SCC 297, which established that the insurer's liability to third parties is statutory, whereas liability to the insured is contractual.

Principles of beneficial construction for social welfare legislation as seen in Shivaji Dayanu Patil v. Vatschala Uttam More (1991) 3 SCC 530.

The Court reasoned that the statutory duty under Section 150(1) creates a "jural correlative" between the third party’s right to compensation and the insurer’s obligation to pay, which is distinct from the contract of indemnity between the insurer and the insured.

The Court observed that the deletion of the proviso to Section 149(4) did not destroy the "pay and recover" doctrine because the Supreme Court in United India Insurance Co. Ltd. v. Lehru had characterized that proviso as merely "illustrative," not the sole source of power.

The deletion of Section 149(5) was found to be a logical consequence of Section 147(2) making insurer liability "unlimited," thereby rendering the concept of "excess" payments (above statutory limits) redundant.

Parliamentary debates and Standing Committee reports confirmed that the 2019 Amendment intended to protect third parties and maintain unlimited liability rather than erode the protection of the "pay and recover" regime.

Therefore, establishng a defense under Section 150(2) only absolves the insurer of contractual liability toward the insured, but the statutory obligation toward the third party remains intact under Section 150(1).

The insurer’s duty toward third parties is statutory under Section 150(1) and remains regardless of whether the insurer establishes a defense under Section 150(2).

The Court concluded that if an insurer proves a policy violation, it must first satisfy the award to the third party and may then recover the sum from the insured as per the procedure in Swaran Singh.

All appeals were dismissed, and the Tribunals' directions for "pay and recover" were upheld.