UNITED INDIA INSURANCE CO. LTD. versus LAXMAMMA & ORS.

Citation: [2012] 5 S.C.R. 261 · Decided: 17-04-2012 · Supreme Court of India · Bench: RAJENDRA MAL LODHA · Disposal: Dismissed

Judgment (excerpt)

[2012] 5 S.C.R. 261 
UNITED INDIA INSURANCE CO. LTD. 
v. 
LAXMAMMA & ORS. 
(Civil Appeal No. 3589 of 2012) 
APRIL 17, 2012 
[R.M. LODHA AND H.L. GOKHALE, JJ.] 
Motor Vehicles Act, 1988 - ss. 146, 147 and 149 -
Insurer's liability against third party risk - Limits of - Owner of 
A 
B 
the vehicle taking an insurance policy for a year and paying 
C 
the premium through cheque - Said cheque towards the 
premium got disho'loured - Subsequent to the accident, 
insurer cancelled the insurance policy - Liability of insurer to 
indemnify third party under the insurance policy - Held: 
Liability of authorized insurer to indemnify third parties o 
subsists and the insurer has to satisfy award of compensation 
unless the policy of insurance is cancelled by the authorized 
insurer and intimation of such cancellation has reached the 
insured before the accident - When before the accident, 
insurance company cancels the policy of insurance and 
E 
intimates the owner, the insurance company is not liable to 
indemnify the third parties. 
F 
The owner of a bus obtained an insurance policy 
from the appellant-Insurance Company (insurer) for a 
period of one year, against the third party risk. The 
premium was paid through cheque but the said cheque 
bounced. Thereafter, due to negligent driving by the bus 
driver, 'M' (husband of respondent No. 1 and father of 
respondent No. 2 and 3) met with an accident, sustained 
grievous injuries and subsequently died. Thereafter, the 
G 
appellant cancelled the insurance policy after the incident 
took place and intimated the same to the owner few days 
later. The respondents filed a claim petition seeking 
compensation. The appellant contended that the 
261 
H 
262 
SUPREME COURT REPORTS 
[2012] 5 S.C.R. 
A insurance policy was not valid as the premium was paid 
through cheque which got dishonoured and thus, they 
were not liable. The tribunal held that the cancellation of 
the policy because of non-payment of the premium was 
done by the insurer after the accident had taken place 
B and the intimation of cancellation was given to the owner 
much later, thus, the insurer was liable to the claimants 
and awarded compensation of Rs. 6,01,244/- to the 
claimants. The High Court upheld the order. Therefore, 
the appellant filed the instant appeal. 
c 
The question which arose for consideration in the 
instant appeal was whether the appellant-Insurance 
Company (insurer) is absolved of its obligations to the 
third party under the policy of insurance because the 
cheque given by the owner of the vehicle towards the 
D premium got dishonoured and subsequent to the 
accident, the insurer cancelled the policy of insurance. 
Dismissing the appeal, the Court 
HELD: 1.1 Where the policy of insurance is issued 
E 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 third parties in respect of the liability which that 
policy covered subsists and it has to satisfy award of 
F compensation by reason of the provisions of Sections 
147(5) and 149(1) of the Motor Vehicles Act, 1988 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 
G 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 
H thereof to the owner, the insurance company's liability to 
UNITED INDIA INSURANCE CO. LTD. v. LAXMAMMA 263 
& ORS. 
indemnify the third parties which that policy covered 
A 
ceases and the insurance company is not liable to satisfy 
awards of compensation in respect thereof. [Para 19] 
[274-F-H; 275-A-B] 
1.2 In the instant case, the owner of the bus obtained 
8 
policy of insurance from the insurer for the period April 
16, 2004 to April 15, 2005 for which premium was paid 
through cheque on April 14, 2004. The accident occurred 
on May 11, 2004. It was only thereafter, that the insurer 
cancelled the insurance policy by communication dated 
May 13, 2004 on the ground of dishonour of cheque 
C 
which was received by the owner of the vehicle on May 
21, 2004. The cancellation of policy having been done by 
the insurer after the accident, the insurer became liable 
t

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