IMPORTANT POINT
Notwithstanding dishonour of cheque, insurance remains in force until cancelled.

JUDGMENT

R.M. Lodha, J.- Leave granted.

2. The only question that arises for consideration in this appeal by special leave is:

whether the appellant, United India Insurance Company Limited (insurer) is absolved of its obligations to the third party under the policy of insurance because the cheque given by the owner of the vehicle towards the premium got dishonoured and subsequent to the accident, the insurer cancelled the policy of insurance.

3. The above question arises in this way. M. Nagaraj (husband of respondent no. 1 and father of respondent nos. 2 and 3) was travelling in a bus bearing registration no. KA 018116 on May 11, 2004. At about 8.50 a.m. on that day due to negligent application of brake by the bus driver, the back door of the bus suddenly opened and M. Nagaraj standing near the door fell down. He sustained grievous injuries and subsequently died. The respondent nos. 1 to 3, to be referred as claimants, filed a claim petition before the Motor Accident Claims Tribunal, Bangalore (for short, ‘Tribunal’) seeking compensation of Rs. 15 lakhs. The present appellant, insurer was impleaded as respondent no. 2 while the owner of the bus was impleaded as respondent no. 1. The owner and the insurer contested the claim petition on diverse grounds. The insurer raised the plea in the written statement that the insurance policy dated April 14, 2004 issued by it covering the said bus for the period April 16, 2004 to April 15, 2005 was not valid as the premium was paid through cheque and the cheque got dishonoured and, therefore, there was no liability on it to cover the third party risk.

4. The Tribunal on recording the evidence and after hearing the parties held that the claimants were successful in proving that on May 11, 2004 at 8.50 a.m. the deceased M. Nagaraj was travelling in the bus and he fell down from the bus through the door by sudden application of brake negligently by the driver and died due to the injuries sustained in that accident. The Tribunal also recorded the finding of fact on examination of the documentary and oral evidence that cancellation of policy because of non-payment of the premium was done by the insurer after the accident had taken place and intimation of cancellation was given to the owner on May 21, 2004 whereas accident took place on May 11, 2004. The Tribunal, thus, held that the insurer was liable to the claimants. The Tribunal in its award dated June 28, 2006 held that claimants were entitled to compensation in the sum of Rs. 6,01,244/- and apportioned that amount amongst claimants. Aggrieved by the award of the Tribunal, the insurer preferred appeal before the High Court. The High Court dismissed the insurer’s appeal on November 11, 2008. It is from this order that the present appeal has arisen.

5. Mr. A.K. De, learned counsel for the appellant strenuously urged that having regard to the undisputed fact that the cheque issued by the owner of the vehicle towards the premium for insurance of vehicle was dishonoured, the contract of insurance became void and the insurer could not be compelled to perform its part of promise under the policy. He submitted that no liability can be fastened on the insurers qua third party if the policy of insurance is rendered void for want of consideration to the insurer. Learned counsel submitted that the view taken by this Court in Oriental Insurance Co. Ltd. v. Inderjit Kaur and others1 [(1998) 1 SCC 371] has been diluted by the later decisions of this Court in the case of National Insurance Co. Ltd. v. Seema Malhotra and others2 [(2001) 3 SCC 151] and Deddappa and others v. Branch Manager, National Insurance Co. Ltd.3 [(2008) 2 SCC 595]. In the alternative, learned counsel for the insurer submitted that if the Court holds that the insurer is liable to pay compensation to the claimants, the amount so paid by the insurer to the claimants must be allowed to be recovered from the insured.

6. Mr. P.R. Ramasesh, learned counsel for respondent no. 4 (owner) s