2025 INSC 951 Non-Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 9854/2016

NATIONAL INSURANCE COMPANY LIMITED ...Appellant(s)

VERSUS

SUNITA DEVI & ORS. ….Respondent(s)

JUDGMENT
N.V. ANJARIA, J.

The present is an appeal preferred by the Insurance

Company, which is directed against judgement and order dated

02.05.2016 passed in Motor Accident Claims Appeal No. 451 of

2007, by the High Court of Delhi, dismissing the appeal of the

appellant herein and confirming the judgment and award dated

20th April, 2007 passed by Motor Accident Claims Tribunal, Delhi

in Suit No. 64 of 2006.

2. In an accident occurred on 22nd August 2005 at about 3.30

p.m., one Dheeraj Singh died. He was driving motorcycle bearing

No. HR-60 4688 along with a pillion rider. The motorcycle was hit
Signature Not Verified

Digitally signed by
NARENDRA PRASAD
Date: 2025.08.08
18:52:02 IST
Reason:

from behind by the speeding truck bearing registration No. HR 46

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A 1020 - offending vehicle. The deceased fell down on the road and

was ran over by the offending vehicle.

2.1 The Motor Accident Claims Tribunal taking into account the

relevant aspects including that the deceased was 36 years old, that

he had been serving as Computer Engineer in a private company

and found to be earning ₹ 3,364/- per month, taking the multiplier

to be 17 awarded total compensation of ₹8,23,000/- under

different heads.

2.2 The defence of the appellant-Insurance Company before the

Tribunal as well as before the High Court was that the policy of

insurance issued in relation to the offending vehicle was cancelled

by it, about which the owner and the Regional Transport Officer

were informed. It was contended that as the policy stood cancelled

and it did not subsist on the date of accident, the appellant-insurer

could not have been fastened with the liability of payment of

compensation.

3. The Tribunal in its judgment recorded the finding that it was

the driver who was rash and negligent in driving to be solely

responsible for causing the accident. The Tribunal further

concluded that the insurance policy stood cancelled on account of

non-payment of the premium and resultantly the insurer was not

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liable. However, the Tribunal directed the appellant-insurance

company-original Respondent No. 3 to pay the compensation in

the first instance and accorded it the right to recover the amount

from Respondent No. 2-Owner. The High Court was of the view that

no ground existed to interfere with the judgment and award of the

Tribunal, consequently, dismissed the appeal as meritless.

3.1 Focusing on the only aspect to be addressed in this Appeal

about the cancellation of the insurance policy and on that count

disowning by the appellant of its liability for payment of

compensation, the evidence as appreciated and recorded by the

Tribunal go to show that the cheque towards the premium which

was sought to be paid in respect of the insurance policy (Ex.

R3W1/5) had bounced on the ground of insufficiency of funds.

This factum was reflected in evidence through memo (R3W1/6).

Witness (R3W1) deposed that the company had sent

communication by the Company (Ex. R3W1/7) cancelling the

insurance policy.

3.2 The insurance policy was on record in form of (Ex. R3W1/5)

and also placed on record was the registered receipt thereof (Ex.

R3W1/8). It was deposed that the Insurance Company had also

intimated the said fact about the cancellation of the policy to the

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RTO, which communication was also on record. The Tribunal in

terms recorded that the testimony of witness appellant-Insurance

Company (R3W1) was not controverted and could not be

demolished. The High Court also accepted the said position to

dismiss the appeal.

4. Emphasising the aforesaid finding on record that the cheque

was dishonoured and the intimation was given by the appellant-

company, learned Advocate, Mr. Amit Kumar Singh, appearing for

the appellant submitted by relying on the decision of this Court in

National Insurance Company Ltd. vs. Seema Malhotra [(2001)

3 SCC 151], that when the insured had failed to pay the premium

promised and the cheque towards the premium returned

dishonoured by the bank, the insurer was not liable to perform its

part of promise.

4.1 Learned advocate for the appellant proceeded to press into

service other two decisions on the line, in Deddappa & Ors. vs.

Branch Manager, National Insurance Company Limited,

[(2008) 2 SCC 595] and United India Insurance Company

Limited vs. Laxmamma & Ors. [(2012) 5 SCC 234], to submit

that when the position was clearly obtained that the premium was

not paid and the communication was sent in that regard to the

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concerned parties, the Tribunal and the High Court, both

committed an error in directing the appellant-company to pay the

amount of compensation to the claimants although to permit the

appellant to subsequently recover from the owner. It was

submitted that the Appellant-Insurance Company was required to

be entirely exempted from the liability to deposit or pay.

4.2 On the other hand, learned advocate-on-record for the

claimants, Mr. Sudhir Naagar, submitted that the judgment and

award by the Tribunal and upholding thereof by the High Court

requiring payment of compensation to the claimants by the

Insurance Company was just and proper and that such direction

was in the nature of doing justice. He submitted that the Insurance

Company has already deposited 50% of the awarded compensation

along with interest and that the claimants have withdrawn the

same.

5. In Deddappa (supra) this Court addressed very point

interpretating the provisions of Section 147(5), 149(1) and 166 of

the Motor Vehicles Act, 1988 in relation to the liability of the

insurance company vis-à-vis the third party in the eventuality of

rescindment of the insurance contract on account of non-payment

of premium because of bouncing of the cheque issued towards

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premium amount. In that case, the cheque dated 15.10.1997 was

dishonoured on 21.10.1995 due to insufficient funds, upon which

the respondent-Insurance Company cancelled the policy and

informed the vehicle owner as well as the RTO.

5.1 This Court held that the contract of insurance stood

rescinded due to failure of consideration and intimation to that

effect given to the parties concerned. However, the Court in

exercise of its jurisdiction under Article 142 of the Constitution,

directed the insurance company to compensate the appellant and

to recover amount from the vehicle owner.

5.2 The subsequent judgment in United India Insurance

Company Limited & Ors. (supra), laid down the very principle

that the statutory liability of the insurer to indemnify the third

parties would subsist unless the insurance policy was cancelled

and the intimation of such cancelation had reached the insured

before the accident. In this judgement also, this Court reiterated

the “pay and recovery” principle.

5.3 Adverting to the facts of the present case, it is to be noticed

that the accident took place on 22.08.2025. The cheque towards

premium was dishonoured and intimation was given vide letter

dated 04.05.2005. Therefore, there was a gap of more than three

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months from the date when the insurance policy was liable to be

treated as cancelled and the date when the accident took place.

5.4 The High Court in its judgment, while confirming the

judgment and award of the Claims Tribunal, appears to have taken

the view that the insurer having admittedly issued the insurance

police against third party risk, the rights of third party would not

get affected when the policy was issued and in that light the

insurer must satisfy the award in favour of the third party, by

protecting the rights of the insurer to allow it the right of recovery.

5.5 From the facts on record and more particularly in view of the

decisions of this Court in Deddappa (supra) and United India

Insurance Company Ltd. (supra) it could be immediately seen

that even as this Court has underscored the proposition that

cancellation of insurance policy issued in favour of the third party

for covering third party risk, because of bouncing of cheque for

premium or non-payment of premium, would in law, absolve the

insurer from liability to pay the compensation, once the insurer

has intimated the cancellation to the parties concerned, in the final

directions issued, the Court thought it fit to direct the insurance

company to make payment of compensation to the claimants and

thereafter to permit it to recover the same.

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5.6 It is to be noted at this stage that pursuant to order dated

27.07.2007 passed by the court in the present proceedings, the

appellant-Insurance Company has already deposited one-half of

the total awarded compensation with interest and that the

claimants have withdrawn the said amount.

5.7 Depositing of the compensation amount by the Insurance

Company as above could be well said to be conforming the law laid

down by this Court in Deddappa (supra) and in United India

Insurance Company (supra). The Insurance Company has

deposited the 50% amount of compensation with interest as

awarded, the same is also released and the respondent-claimants

have received them, in larger interest of justice to all parties, no

recovery deserves to be permitted for the said amount deposited

and withdrawn from the claimants. It would be not only harsh but

would amount to setting the clock back.

6. In the totality of the operative facts, this Court is of the view

that 50% amount which is already paid to the claimants need not

be touched. Therefore, it is provided that there shall be no recovery

from the claimants in respect of the said ½ part of compensation.

The appellant – Insurance Company, however, shall be at liberty

to recover the said 50% amount along with interest deposited by it

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as above and received by the claimants as above, from the owner

of the offending vehicle in accordance with law. As far as the

balance of 50% amount along with interest is concerned, which

remains, the claimants shall be entitled to recover the same from

the owner of the offending vehicle in accordance with law.

7. This appeal is disposed of in the aforesaid terms.

…………………………….. J.
K. VINOD CHANDRAN

…………………………….. J.
N.V. ANJARIA
NEW DELHI;
August 08, 2025

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