The judgment establishes the principle that the liability and rights of an insurance company towards the third party are determined by the provisions of the Motor Vehicles Act, 1939, particularly S.95(1)(b) and S.96, and the terms of the insurance policy, including the avoidance clause.

1. Leave granted.

2. What is the extent of liability of an insurance company towards the third party as per S.95(1)(b) of the Motor Vehicles Act, 1939 (hereinafter called "the Act") and what are its rights in case of payment of an amount in excess of the limits of the liability under the insurance policy vis-a-vis the insured, are the questions to be determined in this appeal. It has been argued on behalf of the insurance company that under the terms of the insurance policy in the instant case, the company was not liable to pay more than Rs. 50,000/-, being the limit of its liability. The excess amount of the Award was to be paid by the insured for which the Tribunal was not competent to issue directions against the appellant-company. On the other hand Counsel for the insured has submitted that as per avoidance clause in the insurance company, the appellant-company was liable to indemnify the whole extent of liability towards the claim notwithstanding the limit of liability of the insurance.

3. In this case the claim petition was filed by the legal heirs of C. Abdul Shukkoor, who died in a road accident on 6.7.1988. The accident was caused by an auto-rickshaw bearing Registration No. KRN 1859 which was insured with the appellant-company. The respondents claimed Rs. 2 lakhs as compensation. The appellant-company filed their reply specifically standing therein that their liability was limited to Rs. 50,000/- under the policy of insurance. The Claims Tribunal passed an award of Rs. 1,94,150/- and fastened the entire liability on the appellant-company. The appeal filed against the order of the Claims Tribunal was dismissed vide the judgment impugned in this appeal.

4. Admittedly, the insurance policy, in this case is of a date prior to the coming into force of the new Motor Vehicles Act on 1.7.1989. The liability of the insurance company to satisfy judgments against persons insured in respect of the third party risk is covered under S.96 of the Act, sub-s. (1) of which provides:

"96. Duty of insurers to satisfy judgments against persons insured in respect of third party risks (1) If, after a certificate of insurance has been issued under sub-s. (4) of S.95 in favour of the person by whom a policy has been effected, judgment in respect of any such liability as is required to be covered by a policy under clause (b) of sub-s. (1) of S.95 (being a liability covered by the terms of the policy) 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."

5. Under the insurance policy the limit of company's liability in respect of any one claim or series of claims arising out of one event is Rs. 50,000/- only. However, the avoidance clause of the policy provides:

"Noting in this policy or the endorsement hereon shall affect the right of any person indemnified by this policy or any other person to recover an amount under or by virtue of the provisions of the Motor Vehicles Act, 1939, S.96.

But the insured shall repay to the company all sums paid by the company which the company would not have been liable to pay but for the said provisions".

6. S.11 of the policy deals with "liability of third party" and provides that the company will indemnify the insured against all sums including claimants costs and expenses which insured become legally liable to pay in respect of the death of or bodily injury to any person caused by or arising out of the use of the motor vehicle or damage to the property caused by such use. A conjoint