The main legal point established in the judgment is that an insurer cannot avoid its liability to indemnify the third party, even if the insurance policy was cancelled due to non-payment of premium.

JUDGMENT :- By way of this appeal, the insurer i.e. National Insurance Company Ltd. has assailed the impugned award mainly on the ground that the insurer could not have been held responsible for payment of the compensation amount on account of the fact that the cheque towards premium issued by respondent No. 3 got dishonoured and pursuant thereto, the insurance policy was cancelled by the appellant. It was further contended that the appellant company being a public undertaking is not supposed to distribute public funds unless there is any legal liability of the insurance company under the contract of insurance to indemnify the loss. It is stated that the insurance cover note in the present case was issued by the appellant for a period w.e.f. 22-5-2000 to 21-5-2001 on receipt of the premium through cheque, but the said cheque was returned unpaid due to insufficient funds lying in the account of the insured as informed to the appellant by the banker of the insured vide memo dated 21/25-5-2000. It is further stated that said bouncing of the cheque and cancellation of the insurance policy by the insurance company was immediately informed by the insurance company vide letter dated 21-5-2000 but despite the said communication, the insurer did not come forward to pay the amount towards premium. It is stated that the contract was not complete and, therefore, no liability to pay compensation to the respondents/claimants could be fastened on the appellant insurer. The appellant has also relied upon Section 64VB of the Insurance Act to state that no risk be assumed unless the premium is received by the insurer in advance.

2. Mr. L. K. Tyagi, counsel for the appellant has urged that the decision of the Supreme Court in Oriental Insurance Co. Ltd. v. Inderjit Kaur, 1 (1998) ACC 1 (SC) : (AIR 1998 SC 588) is distinguishable from the facts of the present case inasmuch as in the present case policy of the insured was cancelled and despite notice being given to the insured, the insured did not pay the premium. The contention of counsel for the petitioner is that the decision of the Apex Court in Inderjit Kaur's case will be of no help to the respondents/claimants in the present case. The counsel also contended that no consideration was ever passed on to the appellant insurer and, therefore, in the absence of any consideration no contract between the insurer and the insured came into existence and in the absence of any contract no liability for payment of any compensation amount could have been imposed upon the appellant by the Tribunal.

3. Mr. Sudarshan Rajan, counsel appearing for respondent No. 1 has urged that the legal position on this issue has been settled by a catena of decisions of the Hon'ble Supreme Court as well as the State High Courts. Counsel for the respondent has placed reliance on the following judgments:

1. Oriental Insurance Co. Ltd. v. Inderjit Kaur, AIR 1998 SC 588; and

2. National Insurance Co. Ltd. v. Swaran Singh, (2004) 3 SCC 297 : (AIR 2004 SC 1531).

4. Counsel has contended that even in a case where the insurer has not received the premium but has issued the policy in favour of the insured, the insurer becomes liable to indemnify the third party in respect of the liability covered by the said policy. The counsel contends that even in a case where the insurance company has cancelled the policy on account of non-payment of premium and accident has taken place after the cancellation, still the insurance company cannot avoid its liability as far as third party is concerned. I find force in the submissions of counsel for the respondent.

5. The Tribunal has relied upon decision of the Apex Court in the case of Inderjit Kaur's case (AIR 1998 SC 588) (supra) and has held the appellant insurer to be liable for compensation as far as the third party is concerned. The Tribunal has also observed the factum of cancellation of the policy due to non-receipt of premium by the insurer but after taking into consideration the decisions of th

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