1. The present appeal arises out of the award dated 19.06.2006 (hereinafter called as ‘Impugned award’) passed by the Chairman, Motor Accidents Claims Tribunal-cum-I Additional District Judge at Kadapa (hereinafter called as ‘the Tribunal’), in M.V.O.P.No.688 of 2004 (hereinafter called as ‘Claim petition’).

2. The appellant is the insurer of the Bus bearing No.KA 22B 3344 (hereinafter called as ‘crime bus’). The respondent Nos.1 and 2 herein, who are parents of one C.Jaya Lakshmi (hereinafter called as ‘deceased’), are the claimants before the Tribunal. The respondent No.3 herein is the owner of the crime bus. For the sake of convenience, the parties hereinafter referred to as they arrayed before the Tribunal.

Proceedings before the tribunal

3. The case of the claimants, in the petition before the Tribunal is that:

                          a. On 03.08.2004 at about 07.00 a.m., while the deceased was proceeding on Kadapa to Kurnool road and when she reached near Arundhativada Church, Chennur Village, the driver of the crime bus drove the same in a rash and negligent manner at high speed, dashed the deceased and ran over her, resulted death of the deceased on the spot.The claimants being legal parents of the deceased claiming compensation of Rs.1,10,000/- against the respondent Nos.1 and 2. Hence, the claim petition.

4. The insurer filed written statement denying the averments in the petition and pleaded thatthe accident occurred due to the negligence of the deceased, but not driver of the crime bus; that the cheque issued by the owner towards premium was dishonoured and the policy issued in respect of the crime bus is cancelled, thereby, the insurer is not liable to pay compensation to the claimants; that the driver of the crime bus is not having valid driving license to drive the same; that the compensation claimed by the claimants is excessive, thereby, prayed to dismiss the petition.

5. During enquiry before the Tribunal,on behalf of the claimants, PWs.1and 2wereexamined and Exs.A.1 to A.5wereexhibited. On behalf of the respondent No.3, its official was examined as R.W.1 and Exs.B.1 to B.12 were marked.

6. Upon appreciation of the oral and documentary evidence on record, the Tribunal held that the accident occurred due to the rash and negligent driving of the crimebusand also held by relying upon the pronouncements of Hon’ble Supreme Court in Oriental Insurance Company Limited v. Inderjit Kaur (1998 ACJ 123) and National Insurance Company Limited v. Seema Malhotra (2001 Supreme Court on Accident Claims 376) thatthe liability of the insurance company to indemnify the liability of the insured even in case of dishonour of cheque issued by the insured towards premium and consequent cancellation of insurance policy, is a statutory liability and insurer cannot escape its liability for the third parties for the period covered by insurance policy irrespective of the fact that such claim of third parties arises subsequent to the date of such cancellation of the policy. Accordingly, a sum of ₹97,000/- was awarded as compensation to the claimants, together with interest at the rate of 7.5% per annum from the date of the claim petition till the date of realization, payable by Respondent Nos.1 and 2, for the death of the deceased in the accident.Aggrieved by the same, the insurer of the crime vehicle has preferred the present appeal seeking dismissal of the claim petition.

Arguments Advanced at the Bar

7. Heard Smt.S.Pranathi, learned counsel for the appellant/insurer and Sri M.Venkata Ramana Reddy, learned counsel for the respondent Nos.1 and 2/claimants.

8. The only contention raised by the learned counsel for the appellant/insurer is that no policy was in existence in respect of the offending bus as on the date of the accident, since the cheque issued towards payment of premium for the policy was dishonoured and the same was intimated to the owner. Therefore, the Insurance Company is not liable to indemnify the liability to pay compensation to the claimants. However, the Tribunal failed to consider the said fact and erroneously fastened the liability jointly and severally on the appellant. Hence, he prays to allow the present appeal.In support of the said contention, he relied upon a judgment of the Hon’ble Supreme Court in United India Insurance Company Limited v. Laxmamma. ((2012) 5 SCC 234)

9. Per contra, learned counsel appearing for Respondent Nos.1 and 2/claimants submits that the Tribunal, by following the settled principles laid down by the Hon'ble Apex Court, rightly came to the conclusion that the insurer of the offending bus is liable to pay compensation to third parties even after cancellation of the policy on account of dishonour of the cheque issued towards payment of premium. He further submits that the findings recorded by the Tribunal are validand based on the material available on record, and therefore require no interference by this Court. Accordingly, he prays for dismissal of the present appeal.

Point for Determination

10. Now, the point that arises for determination is;Whether the appellant/insurance company is liable to indemnify the insured/owner even after cancellation of policy due to dishonor of the cheque issued towards payment of policy premium?

Determination by the Court

11. It is not in dispute that the deceased succumbed to the injuries sustained in the accident involving the offending bus. The involvement of the offending vehicle, the rash and negligent driving of its driver in causing the accident, and the quantum of compensation awarded by the Tribunal are also not under challenge. It is pertinent to note that neither the claimants nor the owner of the offending vehicle have preferred any appeal against the findings recorded by the Tribunal. Thus, the only issue that arises for consideration in the present appeal is with regard to the liability of the insurer.

12. Insofar as the contention advanced by the learned counsel for the appellant/Insurance Company is concerned, it is not in controversy that, as on the date of the accident, i.e., 03.08.2004, the insurance policy issued in respect of the offending bus had already been cancelled due to dishonor of Ex.B.1 cheque dated 21.08.2003 vide Ex.B.2 endorsements dated 26.08.2003 ‘for want of sufficient funds’. The insurer relied upon Ex.B3–intimation dated 08.09.2003 to establish that the cancellation of the policy had been duly communicated to the owner of the vehicle under Ex.B.5 receipt. Therefore, the fact that no policy was subsisting as on the date of the accident is not seriously disputed.

13. The learned counsel for the insurer placed reliance upon the decision of the Hon’ble Supreme Court in Laxmamma (supra) and contended that the insurer cannot be made liable when the policy stood cancelled prior to the date of the accident.

14. In Laxmamma (supra), the insurance policy was issued for the period from 16.04.2004 to 15.04.2005 on the strength of a cheque dated 14.04.2004 issued towards payment of premium. The accident occurred on 11.05.2004. Subsequently, upon dishonour of the cheque, the insurer cancelled the policy by communication dated 21.05.2004.The Hon’ble Supreme Court, while considering the effect of Section 64-VB of the Insurance Act, 1938, held that where the cheque issued towards payment of premium is dishonoured, the insurer may avoid its liability only if the policy of insurance had been cancelled and such cancellation had been duly communicated to the insured prior to the occurrence of the accident.Relevant extracts thereof are as follows;

                          “16.In Inderjit Kaur, the Court invoked the doctrine of public interest and held that the insurance company was liable to indemnify third parties in respect of the liability which the policy covered despite the bar created by Section 64-VB of the Insurance Act. The Court did leave open the question of insurer’s entitlement to avoid or cancel the policy as against the insured when the cheque issued for payment of the premium was dishonoured.

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                          26. In our view, the legal position is this: where the policy of insurance is issued by an authorized insurer on receipt of cheque towards payment of premium and such cheque is returned dishonoured, the liability of authorized insurer to indemnify the third parties in respect of the liability which that policy covered subsists and it has to satisfy award of compensation by reason of the provisions of Sections 147(5) and 149(1) of the M.V. Act unless the policy of insurance is cancelled by the authorized insurer and intimation of such cancellation has reached the insured before the accident. In other words, where the policy of insurance is issued by an authorized insurer to cover a vehicle on receipt of the cheque paid towards premium and the cheque gets dishonored and before the accident of the vehicle occurs, such insurance company cancels the policy of insurance and sends intimation thereof to the owner, the insurance company’s liability to indemnify the third parties which that policy covered ceases and the insurance company is not liable to satisfy awards of compensation in respect thereof.”

                          (emphasis supplied)

15. Therefore, the ratio laid down in Laxmamma (supra) makes it clear that the mere dishonour of the cheque issued towards premium does not, by itself, absolve the insurer of its statutory liability towards third parties. To escape such liability, it must be established that the policy had been cancelled before the accident and that the intimation regarding such cancellation had reached the insured prior to the date of the accident. Thus, effective communication of the cancellation of the policy to the insured before the occurrence of the accident is a condition precedent for the insurer to avoid liability.

16. In the instant case, as discussed above, the insurance policy issued in respect of the offending bus stood cancelled prior to the date of the accident on account of dishonour of the cheque issued towards payment of premium. The evidence on record further discloses that intimation regarding such cancellation was duly communicated to the owner of the vehicle. Therefore, requirements laid down by the Hon’ble Supreme Court in the decision of Laxmamma (supra) stand satisfied. Consequently, the insurer cannot be fastened with liability to satisfy the award, as no valid policy of insurance was in force as on the date of the accident.

17. At this juncture, it is also apposite to refer to the provisions contained in the Insurance Regulatory and Development Authority (Manner of Receipt of Premium) Regulations, 2002. The Regulations provide that, in respect of risks covered under insurance policies, the attachment of risk to the insurer shall be in consonance with the provisions of Section 64-VB of the Insurance Act, 1938. It is further stipulated that, except where the premium is paid in cash, the insurer shall assume risk only upon actual receipt of the premium. The proviso thereto specifically states that, in the case of a policy of general insurance, where the remittance made by the proposer or policyholder is not realized by the insurer, the policy shall be treated as void ab initio. In the present case, since the cheque issued towards premium was dishonoured and the policy stood cancelled prior to the accident with due intimation to the insured, the insurer cannot be held liable to pay compensation to the claimants.

18. Having regard to the foregoing discussion and the legal position governing the field, this Court is of the considered opinion that the Tribunal committed an error in fastening liability upon the appellant–Insurance Company, despite the fact that the insurance policy had been cancelled prior to the accident and the cancellation had been duly communicated to the owner of the offending vehicle. Accordingly, the appeal deserves to be allowed. Consequently, the claim petition, insofar as it relates to the appellant–Insurance Company, stands dismissed. However, considering the beneficial object underlying the provisions of the Motor Vehicles Act and in order to avoid hardship to claimants, it is directed that the appellant–Insurance Company shall not recover any amount, if already paid, from the claimants pursuant to the award and is at liberty to recover the same from the owner of the crime bus, who has absolute liability to pay the compensation to the claimants. Further, if any amount deposited by the appellant–Insurance Company is lying to the credit of the claim petition before the Tribunal, it shall be at liberty to withdraw the same together with the accrued interest, in accordance with law. It is needless to say that the owner of the crime bus shall pay the compensation amount if any due to the claimants as awarded by the Tribunal, within two (2) months from the date of this Judgment. Accordingly, the point is answered in favour of the appellant.

19. In result, the M.A.C.M.A. is allowed in the above terms. There shall be no order as to costs.

Interim orders granted earlier if any, stand vacated.

Miscellaneous petitions pending if any, stand closed.