Insurers remain liable under the principle of pay and recover even if exonerated unless they prove fundamental breaches contributing to the liability.

ORDER :

1. This Miscellaneous Appeal, under Section 173 of the Motor Vehicles Act, (for brevity “the Act”) has been filed against Award dated 02.05.2024 passed by Member, Motor Accident Claims Tribunal, Guna (M.P.) in M.A.C.C. No.140/2023.

2. A solitary ground was raised by counsel for the Insurance Company that although the Insurance Company has been exonerated on the ground that the offending vehicle was being driven in violation of the terms and conditions of the insurance policy as the driver of the vehicle was not having valid and effective licence, but the Claims Tribunal has applied the principle of pay and recover. It is submitted that the principle of pay and recover came into force for the first time after the judgment was passed by the Supreme Court in the case of National Insurance Company Limited vs. Swaran Singh and Others, 2004 ACJ 1. Thereafter, Section 149 was renumbered as Section 150 of the Act. It is submitted that earlier proviso to sub-section 4 of Section 149 and sub-section 5 provided for the concept of pay and recover. However, after amendment, the proviso to sub-section 4 and sub-section 5 of Section 150 of the Act have been omitted. Thus, in view of changed scenario, the judgment passed by the Supreme Court in the case of Swaran Singh (supra) does not hold good, and thus, where the Insurance Company is exonerated from its liability on the ground of violation of the terms and conditions of the insurance policy, then the principle of pay and recover cannot be applied.

3. Per contra, appeal is vehemently opposed by counsel for the respondents.

4. Section 149 of the Act, which was earlier in existence, reads as under:-

149. Duty of insurers to satisfy judgments and awards against persons insured in respect of third party risks.—

(1) If, after a certificate of insurance has been issued under sub-section (3) of section 147 in favour of the person by whom a policy has been effected, judgment or award in respect of any such liability as is required to be covered by a policy under clause (b) of sub-section (1) of section 147 (being a liability covered by the terms of the policy) 1 [or under the provisions of section 163A] 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.

(2) No sum shall be payable by an insurer under sub-section (1) in respect of any judgment or award unless, before the commencement of the proceedings in which the judgment or award is given the insurer had notice through the Court or, as the case may be, the Claims Tribunal of the bringing of the proceedings, or in respect of such judgment or award so long as execution is stayed thereon pending an appeal; and an insurer to whom notice of the bringing of any such proceedings is so given shall be entitled to be made a party thereto and to defend the action on any of the following grounds, namely:—

(a) that there has been a breach of a specified condition of the policy, being one of the following conditions, namely:—

(i) a condition excluding the use of the vehicle—

(a) for hire or reward, where the vehicle is on the date of the contract of insurance a vehicle not covered by a permit to ply for hire or