2000 JTR(SC) 510
2000 ACJ 630 ; 2000 AIR(SC) 1082 ; 2000 AIR(SCW) 788 ; 2000 2 ALD(SC) 75 ; 2000 2 AllCJ 1443 ; 2000 39 AllLR 227 ; 2000 2 ALT(SC) 45 ; 2000 2 AWC 1358 ; 2000 100 CompCas 711 ; 2000 2 CTC 179 ; 2001 2 GLR 1219 ; 2000 2 ICC 186 ; 2000 ILR(Kar) 2109 ; 2000 3 JT 37 ; 2000 2 KLT(SN) 27 ; 2000 18 LCD 1116 ; 2000 2 MLJ 167 ; 2000 2 MPHT 440 ; 2000 1 OLR 543 ; 2000 2 PLR(SC) 765 ; 2000 2 RCR(Civ) 391 ; 2000 1 RLW(Raj) 117 ; 2000 2 Scale 255 ; 2000 3 SCC 195 ; 2000 SCC(Cri) 601 ; 2000 3 SCJ 42 ; 2000 2 SCR 148 ; 2000 WBLR 301 ; 2000 WLC 275 ; 2000 AIRSCW 788 ; 2000 2 TAC 1 ; 2000 KHC 505 ; 2000 2 Supreme 158
2000(2) Supreme 158
SUPREME COURT OF INDIA
(From Madhya Pradesh High Court)
S. Saghir Ahmad & R.P. Sethi, JJ.
New India Assurance Co. Ltd. -Appellant
versus
Rula and Ors. -Respondents
Civil Appeal Nos 1985-1987 of 2000
(@ SLP (Civil) Nos. 3396-3398 of 1999)
Decided on 7-3-2000
Counsel for the Parties :
For the Appellant : S.L. Gupta, K.K. Mishra and J.S. Attri, Advocates.
VERY IMPORTANT POINT
If on the date of accident of the vehicle there was a insurance policy, insurer cannot escape from liability to meet claims of third parties on the ground that the policy came to be cancelled subsequently on ground of non-payment of premium as a result of dishonour of cheque issued towards premium.
Act Referred :MOTOR VEHICLES ACT : S.149, S.147(5)
(A) The Motor Vehicles Act, 1988, read in conjunction with Sections 146, 147(5), 149, and the framework of Chapter 11, establishes a regulatory scheme mandating third-party insurance for motor vehicles to ensure that victims of road accidents can recover compensation without regard to the financial status of the vehicle owner. Although Sections 64-VB of the Insurance Act, 1938 and certain principles of contract law contemplate that an insurance contract requires valid consideration in the form of premium, the Motor Vehicles Act creates a distinct statutory insurance contract where the primary obligation is to indemnify third parties. The provisions of Section 147(5) and Section 149 override ordinary contractual considerations by imposing liability on the insurer once a certificate of insurance has been issued, irrespective of subsequent lapses in premium payment. This case specifically invokes these provisions to determine that the rights of third-party claimants vested at the time of the accident and are not defeated by the later dishonour of the premium cheque or cancellation of the policy.
(B) Key legal principles include: (i) Motor vehicle insurance under Chapter 11 of the Motor Vehicles Act is a statutory contract designed for the benefit of third parties; (ii) Section 147(5) bars insurers from denying liability to third parties covered under the policy; (iii) Section 149 imposes a duty on insurers to satisfy judgments and awards against the insured; (iv) the rights of third parties accrue upon issuance of the policy and vest at the time of the accident; (v) cancellation of the policy on grounds of non-payment of premium does not extinguish rights already accrued by third parties; and (vi) the doctrine of consideration under the Contract Act does not apply to defeat the statutory object of ensuring compensation to accident victims.
Facts of the case:
The appellant insured Truck No. CII-7928 on 8.11.1991 under a policy issued in compliance with the Motor Vehicles Act, 1988. At midnight on the same day, the truck was involved in an accident resulting in the deaths of three occupants. Their dependants filed three claim cases before the Motor Accident Claims Tribunal, which decreed compensation against the appellant. The appellant contested the claims, arguing that the cheque paid for the premium was dishonoured on 16.11.91, leading to cancellation of the policy. The Tribunal and subsequently the High Court rejected this contention, directing payment of compensation.
Findings of Court:
The court found that the insurance policy was validly issued on the date of the accident, creating a statutory liability on the insurer. The dishonour of the premium cheque and subsequent cancellation of the policy did not affect the rights of the third parties who had already accrued claims under the policy. The High Court was correct in dismissing the appeals.
Issues:
Whether a contract of insurance under the Motor Vehicles Act is invalidated by non-payment of premium after the policy is issued; whether third-party rights vesting at the time of an accident are defeated by subsequent cancellation of the policy; and whether Section 64-VB of the Insurance Act, 1938 applies to override statutory provisions in the Motor Vehicles Act.
Ratio Decidendi:
Under the statutory scheme of the Motor Vehicles Act, 1988, an insurance policy issued for a motor vehicle creates a contractual obligation to indemnify third parties for accidents occurring during the policy period. The rights of third parties vest at the time of the accident and are protected from subsequent cancellation of the policy due to non-payment of premium, as the primary object of the statute is to ensure compensation for victims.
Result:
The appeals are dismissed, and no order as to costs is made.
(A) The Motor Vehicles Act, 1988, read in conjunction with Sections 146, 147(5), 149, and the framework of Chapter 11, establishes a regulatory scheme mandating third-party insurance for motor vehicles to ensure that victims of road accidents can recover compensation without regard to the financial status of the vehicle owner. Although Sections 64-VB of the Insurance Act, 1938 and certain principles of contract law contemplate that an insurance contract requires valid consideration in the form of premium, the Motor Vehicles Act creates a distinct statutory insurance contract where the primary obligation is to indemnify third parties. The provisions of Section 147(5) and Section 149 override ordinary contractual considerations by imposing liability on the insurer once a certificate of insurance has been issued, irrespective of subsequent lapses in premium payment. This case specifically invokes these provisions to determine that the rights of third-party claimants vested at the time of the accident and are not defeated by the later dishonour of the premium cheque or cancellation of the policy.
(B) Key legal principles include: (i) Motor vehicle insurance under Chapter 11 of the Motor Vehicles Act is a statutory contract designed for the benefit of third parties; (ii) Section 147(5) bars insurers from denying liability to third parties covered under the policy; (iii) Section 149 imposes a duty on insurers to satisfy judgments and awards against the insured; (iv) the rights of third parties accrue upon issuance of the policy and vest at the time of the accident; (v) cancellation of the policy on grounds of non-payment of premium does not extinguish rights already accrued by third parties; and (vi) the doctrine of consideration under the Contract Act does not apply to defeat the statutory object of ensuring compensation to accident victims.
Facts of the case:
The appellant insured Truck No. CII-7928 on 8.11.1991 under a policy issued in compliance with the Motor Vehicles Act, 1988. At midnight on the same day, the truck was involved in an accident resulting in the deaths of three occupants. Their dependants filed three claim cases before the Motor Accident Claims Tribunal, which decreed compensation against the appellant. The appellant contested the claims, arguing that the cheque paid for the premium was dishonoured on 16.11.91, leading to cancellation of the policy. The Tribunal and subsequently the High Court rejected this contention, directing payment of compensation.
Findings of Court:
The court found that the insurance policy was validly issued on the date of the accident, creating a statutory liability on the insurer. The dishonour of the premium cheque and subsequent cancellation of the policy did not affect the rights of the third parties who had already accrued claims under the policy. The High Court was correct in dismissing the appeals.
Issues:
Whether a contract of insurance under the Motor Vehicles Act is invalidated by non-payment of premium after the policy is issued; whether third-party rights vesting at the time of an accident are defeated by subsequent cancellation of the policy; and whether Section 64-VB of the Insurance Act, 1938 applies to override statutory provisions in the Motor Vehicles Act.
Ratio Decidendi:
Under the statutory scheme of the Motor Vehicles Act, 1988, an insurance policy issued for a motor vehicle creates a contractual obligation to indemnify third parties for accidents occurring during the policy period. The rights of third parties vest at the time of the accident and are protected from subsequent cancellation of the policy due to non-payment of premium, as the primary object of the statute is to ensure compensation for victims.
Result:
The appeals are dismissed, and no order as to costs is made.
JUDGMENT
S. Saghir Ahmad, J.-Leave granted.
2. 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 Vehicle 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 VEHICLES), SCHEDULE-POLICY `A (Act only)-Certificate No. 006424 Policy 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 dependants filed three Claim Cases, viz. No. 156/91, 157/91 and 158/91 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. 156/91; Rs. 1,16,000/- in Case No. 157/91 and Rs. 67,600/- in Case No. 158/91. 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.
3. We have heard learned counsel for the appellant whose principal contention has been that the Policy of Insurance represents a contract between the insurer and the insured, for consideration in the form of premium. It is contended that if premium is not paid, the contract would not be valid as there cannot be any contract without consideration. Reliance for this purpose has been placed by learned counsel for the appellant on various provisions of the Contract Act. 1872 and it is contended that since the cheque through which premium was sought to be paid to the appellant was dishonoured by the bank when it was presented for encashment, there was a failure of consideration and as such no contract of insurance came into existence as between the insurer and the insured. It is also contended that under Section 64-VB of the Insurance Act, 1938, no risk would be assumed unless premium was received in advance. These contentions cannot be accepted.
4. According to Clause (d) of Section 2 of the Contract Act, consideration is spoken of thus :
"(d) When, at the desire of the promisor, the promisee or any other person had done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise."
Similarly, Clauses (e) and (f) provide as under:
"(e) Every promise and every set of promises, forming the consideration for each other, is an agreement.
(f) Promises which form the consideration or part of the consideration for each other are called reciprocal promises."
It is further provided by Clause (h) that an agreement enforceable by law is a contract.
5. Now, a contract of insurance, like any other contract, is concluded by offer and acceptance. Normally, a liability under the contract of insurance would arise only on payment of premium if such payment was made a condition precedent to the Insurance Policy taking effect. But such a condition which is intended for the benefit of the insurer can be waived by the insurer as laid down in Abdul Azeez & Co. v. National Insurance Co. Ltd.1, in which a decision of the Bombay High Court in Ocean Accident & Guarantee Corporation Company v. Patkar2 was followed. To the same effect is an old decision in Equitable Fire & Accident Office v. Ching Wo Hong3. These are the principles relating to an ordinary contract of insurance, but the contract of insurance relating to motor vehicles has to be understood in the light of the various provisions contained in the Motor Vehicles Act, 1988. Chapter 11 of the Motor Vehicles Act deals with insurance of motor vehicles against third party risks. Section 146(1), inter alia, provides as under:
"146. Necessity for insurance against third party risk.
(1) No person shall use, except as a passenger, or cause or allow any other person to use, a motor vehicle in a public place, unless there is in force in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of this Chapter."
Section 147(5) provides as under :
"(5) Notwithstanding anything contained in any law for the time being in force, an insurer issuing a policy of insurance under this section shall be liable to indemnify the person or classes or persons in the policy in respect of any liability which the policy purports to cover in the case of that person or those classes of persons."
6. Section 149 casts a duty on the insurer to satisfy judgments and awards against persons insured in respect of third party risks. Sub-section (1) of Section 149 is quoted below :
"149. Duty of insurers to satisfy judgments and awards against person insured in respect of third party risks.-
(1) If, after a certificate of insurance has been issued under sub-section (3) of Section 147 in favour of the person by whom a policy has been effected, judgment or award in respect of any such liability as is required to be covered by a policy under clause (b) of sub-section (1) of Section 147 (being a liability covered by the terms of the policy) [or under the provisions of Section 163A] is obtained against any person insured by the policy then, notwithstanding that the insurer may be entitled to avoid or cancel or may have avoided or cancelled the policy, the insurer shall, subject to the provisions of this section, pay to the person entitled to the benefit of the decree any sum not exceeding the sum assured payable thereunder, as if he were the judgment-debtor, in respect of the liability, together with any amount payable in respect of costs and any sum payable in respect of interest on that sum by virtue of any enactment relating to interest on judgments."
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 injuries.
8. 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 out by this Court in New Asiatic Insurance Co. Ltd. v. Pessumal Dhanamal Aswami & Ors.4, 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 insurer.
9. It was in the background of the above statutory provisions that the provisions of Section 64-VB, upon which reliance has been placed by learned counsel for the appellant, were considered by this Court in Oriental Insurance Co. Ltd. v. Inderjit Kaur & Ors.5, in which it was laid down as under:
"We have, therefore, this position. Despite the bar created by Section 64-VB of the Insurance Act, the appellant, an authorised insurer, issued a policy of insurance to cover the bus without receiving the premium therefor. By reason of the provisions of Section 147(5) and 149(1) of the Motor Vehicles Act, the appellant became liable to indemnify third parties in respect of the liability which that policy covered and to satisfy awards of compensation in respect thereof notwithstanding its entitlement (upon which we do not express any opinion) to avoid or cancel the policy for the reason that the cheque issued in payment of the premium thereon had not been honoured."
10. The decision, which is a 3-Judge 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 of non-payment of premium would not affect the rights already accrued in favour of the third party.
11. The above decision of this Court was relied upon by the High Court in negativing the contention raised by the appellant. The High Court, in the circumstances of the case, was fully justified in dismissing the appeals. We find no infirmity in the judgment of the High Court. Consequently, the appeals are dismissed. There will be no order as to costs.
(C.R.) Appeals dismissed.
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