The main legal point established in the judgment is the liability of the insurance company to indemnify the insured in cases of motor vehicle accidents, emphasizing the importance of timely intimation of cancellation of the insurance policy to the owner of the vehicle.

JUDGMENT :

1. The Insurance Company has preferred the appeal against the award of compensation in Compensation Case No.171/1998 under Section 166 of the Motor Vehicle Act, 1988 whereby and where under the insurance company has been held liable for paying the compensation amount to the claimants.

2. The appeal has been preferred on the ground that the offending vehicle was not under its insurance cover on the date of accident 7.6.1998.

3. As per the claimant’s case the motor vehicle accident took place on 07.06.1998 involving a jeep bearing registration No. BR-14 P-1548. The interest of the owner of the vehicle Chandra Bhusan Singh in the said vehicle was under its insurance cover from 5.5.1998 to 4.5.1999. Thereafter the cheque for a sum of Rs.7215 for payment of premium was submitted to the insurance company for its renewal, but the same was dishonoured due to insufficiency of fund. It was written by the State Bank of India with a remark, “insufficient fund” consequently, the Insurance Company cancelled insurance policy and intimated the owner of the vehicle (O.P.1) about it. It is argued that since the vehicle was not under its insurance cover at the relevant time of accident therefore it was not liable for paying the compensation amount.

4. Learned Tribunal as noted that the offending vehicle was under the insurance cover of O.P. No.2 United India Insurance Company at the relevant time of accident and the said insurance policy was issued on payment of premium of Rs.7215 through a cheque issued by the O.P. No.1 being the owner of the vehicle. The insurance company presented the cheque to the bank which was returned back with endorsement of insufficiency of fund. On 22.04.99 after about one year insurance company intimated the owner of the vehicle regarding dishonour of the cheque to registered letter (Ext B). It was against this background that the Tribunal on the basis of ratio decided by Hon’ble the Apex court in Inderjit Kaur & Ors. 1998(2) TAC 615 (SC) held the insurance company liable to pay the compensation amount.

5. The short question that falls for consideration is whether on account of delay in intimation of the cancellation of the insurance policy to the owner of vehicle the insurance company shall be liable for payment of the compensation amount?

6. Liability of the insurance company to indemnify the insured in cases of motor vehicle accident is founded on the contractual liability with the insured during the subsistence of the insurance policy. It has been held in Deddappa v. National Insurance Co. Ltd., (2008) 2 SCC 595 that ordinarily a liability under the contract of insurance would arise only on payment of premium, if such payment was made a condition precedent for taking effect of the insurance policy but such a condition which is intended for the benefit of the insurer can be waived by it. It was opined : (SCC p. 200, para 13)

“13. … 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 the insurance policy on the ground of non-payment of premium would not affect the rights already accrued in favour of the third party.”

The dicta laid down therein clarifies that if on the date of accident the policy subsists, then only the third party would be entitled to avail the benefit thereof.

18. Thus, when the insured fails to pay the premium promised, or when the cheque issued by him towards the premium is returned dishonoured by the bank concerned the insurer need not perform his part of the promise. The corollary is that the insured cannot claim performance from the insurer in such a situation.

19. Under Section 25 of the Contract Act an agreement made without consideration is void. Section 65 of the Contract Act says that when a contract becomes void any person who has received any