NEW INDIA ASSURANCE CO. LTD versus RULA AND ORS.

Citation: [2000] 2 S.C.R. 148 · Decided: 07-03-2000 · Supreme Court of India · Bench: S. SAGHIR AHMAD · Disposal: Dismissed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
c 
NEWINDIAASSURANCE CO. LTD. 
v. 
RULA AND ORS. 
MARCH7, 2000 
[S. SAGHIRAHMAD AND R.P. SETHI, JJ.] 
Motor Vehicles Act, 1988 : 
Chapter II-Section 146, 147and149-lnsurance of Motor Vehicles-
Liability of Insurance Company towards third party. 
Insurance Act, 1938: Seciion 64-VB. 
Insurance Company-Liability towards third parlies-non-payment of 
premium-Would not affect their rights. 
D 
Contract Act : Sections 2( d) ( e) (f) and (h). 
E 
F 
G 
Insurance Contract-Consideration for-Relevancy of 
Insurance-Policy issued by company in respect of a truck-Accident-
Death of a cleaner and two labourers-Claim by dependants-Denial of liabil-
ity by. company-Ground subsequent cancellation of policy as premium cheque 
was dishonoured-Held Insurance Company was liable to pay compensation-
Principles of contract of insurance relating to motor vehicles-Should be 
understood in the light of provisions contained in Chapter II of Act. 
In terms of the requirements of the Motor Vehicles Act, 1988, the 
appellant-Insurance Company issued an Insurance Policy on 8.11.1991 in 
respect of a truck. On the same day the said truck met with an accident in 
which a cleaner and two labourers lost theit lives. Their dependants filed 
claims for compensation. The Insurance Company denied its liability on 
the ground that the policy issued was subsequently cancelled because the 
cheque paid by the insured towards premium was dishonoured. However, 
the Tribunal decreed all the three claims and directed the Insurance Com-
pany to pay compensation. There awards were unsuccessfully challenged 
before the High Court. 
In appeals to this Court it was contended on behalf of the Insurance 
H 
Company that (i) a policy of insurance being a contract between the 
148 
NEW INDIA ASSURANCE CO. v. RULA 
149 
insured and insurer its premium was consideration; due to dishonour of 
A 
cheque there was failure of consideration and consequently no contract of 
insurance came into existence; (ii) in view of the provisions contained in 
Section 64-VB of the Insurance Act, 1938 no risk could be assumed unless 
premium was received in advance •. 
Dismissing the appeals, this Court 
HELD : 1. The High Court, in the circumstance of the case, was fully 
justified in dismissing the appeals. There is no infirmity in the judgment of 
the High Court. [154-G] 
2. The subsequent cancellation of the Insurance Policy in the instant 
case on the ground that the cheque through which premium was paid was 
dishonoured, would not affect the rights of the third party which had 
accrued on the issuance of the Policy on the date of which the accident took 
place. 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 indem-
nified in respect of the claim of that party. Subsequent cancellation of 
Insurance Policy on the ground of non-payment of premium would not 
affect the rights already accrued in favour of the third party. [154-E-F] 
Oriental Insurance Co. Ltd. v. lnderjit Kaur & Ors., [1998] SCC 371, 
applied. 
3. A contract of insurance, like any other contract, is concluded by 
offer and acceptance. Normally, a liability under the contract of insurance 
would arise only on payment of premium if such payment was made a 
condition precedent to the Insurance Policy taking effect. But such a 
condition which is intended for the benefit of the insurer can be waived by 
the insurer. These are the principles relating to an ordinary contract of 
insurance, but a contract of insurance relating to motor vehicles has to be 
understood in the light of Sections 146, 147(5) and 149, contained in 
Chapter 11 of the Motor Vehicles Act, 1988, dealing with insurance of 
motor vehicles against third party risks. Thus, any contract of insurance 
under Chapter 11 of the Motor Vehicles Act, 1988 contemplates a third 
party who is not a signatory or a party to the contract of insurance but is, 
neyertheless, protected by such contract. The rights of the third party to 
get indemnified can be exercised only against the insurer of the vehicle. 
B 
c 
D 
E 
F 
G 
H 
A 
B 
c 
150 
SUPREME COURT REPORTS 
[2000] 2 S.C.R. 
The third party is not concerned and does not come into the picture at all 
in the matter of payment of premium. Whether the premium has been paid 
or not is not the concern of the third party who is concerned with the fact 
that th

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