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.

Headnote:Motor Vehicles Act, 1988-Sections 147(5) and 149-Third party risks-Liability of insurer-Insurance policy issued on basis of cheque issued by owner-On same day truck met with accident resulting in death of three persons-Cheque dishonoured and policy came to be cancelled subsequently-Refusal to meet claim of third party on ground there was no valid contract of insurance-Not tenable-On date of accident there was a insurance policy-Subsequent cancellation of policy would not affect claim of third party-Provisions of Section 64 of Insurance Act, 1938 cannot come in way of third party claims.
       Held : Contract Insurance has 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. 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. 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. (Paras 7 & 8)
       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. (Para 10)

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

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2000 Supreme(SC) 510

Cases Referred (3)