Case: New India Assurance Co.Ltd Vs. Rula

The appellant had insured Truck No. CII-7928 on 8.11.1991 and issued an Insurance Policy in terms of the requirements of the Motor Vehicles Act, 1988. The Insurance Policy, which has been filed as Annexure P-1 to this petition, is headed as "MOTOR VEHICLES ACT, 1988 (GOODS CARRYING VEHICLE), SCHEDULE - POLICY `A (Act only) - Certificate No. 006424 Police No. 3145070606875". The same day, at midnight, it met with an accident, in which three occupants, namely, Tetia @ Ramlal (Cleaner) and two labourers, Bada and Bhakla, died. Their dependents filed three Claim Cases, viz. No. 15691, 15791 and 15891 before the Motor Accident Claims Tribunal, Barwani, M.P., which were contested by the appellant on the ground, inter alia, that the truck was not covered by any insurance policy, inasmuch as the truck-owner had obtained the Insurance Policy on the basis of a cheque dated 8.11.1991 towards payment of premium, but this cheque was dishonoured on 16.11.1991 with the result that the Insurance Policy itself was cancelled. The contention of the appellant was not accepted by the Tribunal, which decreed all the three claims by its award dated 25.1.1996, directing payment of Rs. 48,200- as compensation in Case No. 15691; Rs. 1,16,200- in Case No. 15791, and Rs. 67,600- in Case No. 15891. These awards were challenged by means of three appeals filed in the High Court which, by its judgment dated 28.9.1998, dismissed the appeals. Now, the present appeals.

Court's reasoning:
7. The contract of insurance in respect of motor vehicles has, therefore, to be construed in the light of the above provisions. Section 146(1) contains a prohibition on the use of the motor vehicles without an insurance policy having been taken in accordance with Chapter 11 of the Motor Vehicles Act. The manifest object of this provision is to ensure that third party, who suffers injuries due to the use of the motor vehicle, may be able to get damages from the owner of the vehicle and recoverability of the damages may not depend on the financial condition or solvency of the driver of the vehicle who had caused the injuries8. Thus, any contract of insurance under Chapter 11 of the Motor Vehicles Act, 1988 contemplates a third party who is not a signatory or a party to the contract of insurance but is, nevertheless, protected by such contract. As pointed cut by this Court in New Asiatic Insurance Co. Ltd. v. Pessumal Dhanamal Aswani & Ors., AIR 1964 SC 1736 , the rights of the third party to get indemnified can be exercised only against the insurer of the vehicle. It is thus clear that the third party is not concerned and does not come into the picture at all in the matter of payment of premium. Whether the premium has been paid or not is not the concern of the third party who is concerned with the fact that there was a policy issued in respect of the vehicle involved in the accident and it is on the basis of this policy that the claim can be maintained by the third party against the insurer10. This decision, which is ae Bench decision, squarely covers the present case also. The subsequent cancellation of the Insurance Policy in the instant case on the ground that the cheque through which premium was paid was dishonoured, would not affect the rights of the third party which had accrued on the issuance of the Policy on the date on which the accident took place. If, on the date of accident, there was a Policy of Insurance in respect of the vehicle in question, the third party would have a claim against the Insurance Company and the owner of the vehicle would have to be indemnified in respect of the claim of that party. Subsequent cancellation of Insurance Policy on the ground oft of premium would not affect the rights already accrued in favour of the third party.