Summary and Analysis of National Insurance Company Limited vs. Sunita Devi & Ors

1. Heading of the Judgment

National Insurance Company Limited vs. Sunita Devi & Ors.
(Civil Appeal No. 9854 of 2016, Supreme Court of India)

Citation:
National Insurance Co. Ltd. vs. Sunita Devi & Ors., (2025) INSC 951 (Supreme Court of India).

2. Related Laws and Sections

The judgment interprets the following provisions of the Motor Vehicles Act, 1988:

• Section 147(5): Statutory obligation to insure against third-party risks.

• Section 149(1): Liability of insurers to satisfy judgments against insured persons.

• Section 166: Procedure for filing compensation claims.

3. Basic Judgment Details

• Parties:
  Appellant: National Insurance Company Limited (Insurer).
  Respondents: Sunita Devi & Ors. (Legal heirs of the deceased).

• Courts Involved:
  Motor Accident Claims Tribunal (MACT), Delhi: Awarded compensation (20.04.2007).
  Delhi High Court: Upheld MACT’s award (02.05.2016).
  Supreme Court: Final appeal.

• Accident: Occurred on 22.08.2005; deceased Dheeraj Singh (36-year-old computer engineer) died after his motorcycle was hit by a truck (HR 46 A 1020).

• Compensation Awarded: ₹8,23,000/- by MACT.

4. Explanation of the Judgment

Core Issue

Whether the insurance company could avoid liability because the insurance policy was cancelled before the accident due to non-payment of premium (cheque bounced).

Background

• The insurer argued the policy for the truck (offending vehicle) was cancelled on 04.05.2005 because the premium cheque bounced (Ex. R3W1/6). The owner and Regional Transport Office (RTO) were informed (Ex. R3W1/7).

• The accident occurred on 22.08.2005 (over 3 months after cancellation).

• MACT & High Court: Directed the insurer to pay compensation first and later recover it from the vehicle owner.

Supreme Court’s Analysis

1. Validity of Policy Cancellation:
   The Court confirmed the policy was legally cancelled due to non-payment (bounced cheque). Evidence proved the insurer informed the owner and RTO.
   Precedents Relied On:
   National Insurance Co. Ltd. vs. Seema Malhotra (2001): Insurer not liable if premium not paid.
   Deddappa & Ors. vs. National Insurance Co. Ltd. (2008): Cancelled policy absolves insurer, but courts may order "pay and recover" under Article 142 of the Constitution.
   United India Insurance Co. Ltd. vs. Laxmamma & Ors. (2012): Insurer’s liability to third parties ends only if cancellation is communicated before the accident.

2. "Pay and Recover" Principle:
   Despite the valid cancellation, the Court upheld the "pay and recover" approach to protect victims. The insurer must pay compensation but can recover it from the vehicle owner.
   Reason: Third-party rights cannot be defeated by policy cancellation after the policy is issued.

Final Decision

• The insurer had already deposited 50% of the compensation (₹4,11,500 + interest) as per an interim court order (27.07.2007), which the claimants withdrew.

• Supreme Court Modified the Order:
  No recovery from claimants for the 50% already paid.
  Insurer may recover this 50% from the vehicle owner.
  Balance 50% (₹4,11,500 + interest) to be recovered by claimants from the vehicle owner.

Key Principle Affirmed

"An insurer can disown liability if a policy is cancelled due to non-payment of premium and intimated before the accident. However, courts may direct the insurer to pay victims first (to ensure speedy justice) and later recover the amount from the owner."

5. Conclusion

The Supreme Court partly allowed the insurer’s appeal:

1. Claimants retain 50% compensation already paid.

2. Insurer to recover this 50% from the vehicle owner.

3. Claimants to recover remaining 50% from the owner.