Oriental Insurance Co Ltd vs Sanjay & Ors.

S.No. Title Page No.

The Accident 3-4

Submissions on behalf of parties 4-7

Submissions on behalf of claimant 7-7

Submissions on behalf of Amicus Curiae 7-11

Analysis 12-20

Statutory mandate of third-party insurance 20-20

Duty of insurer to satisfy awards and judgments 20-22

Cover note 22-25

Avoidance of contract 25-25

Interplay with Insurance Act, 1938 26-27

Liability to pay and right of recovery 27-40

Guideposts 40-41

Quantum of compensation 41-45

Conclusion 45-46

Anish Dayal, J.

These appeals raise the issue of third-party liability owed by the Insurance Company in cases where the cheque for payment of premium, issued by the insured, was dishonoured prior to the accident.

These cross-appeals have been filed assailing impugned award dated 19^th May 2018 passed by the Motor Accident Claims Tribunal, Shahdara District, Karkardooma Courts, Delhi (‘Tribunal/MACT’) in MACT No.541/2016. While, MAC.APP.610/2018 has been filed by the Insurance Company, pleading for exoneration from liability basis that the cheque for payment of premium for insurance bounced and the insurance policy stood cancelled. MAC.APP. 45/2019 on the other hand, has been filed by Sanjay (hereinafter, ‘claimant’), seeking enhancement of compensation.

By order dated 09^th July 2018, notice had been issued in MAC.APP.610/2018, directing the Insurance Company to deposit the entire awarded amount, subject to which enforcement of the impugned award had been stayed. Thereafter, on 11^th November 2022, 50% of the awarded amount along with interest, had been released to the claimant.

The accident occurred on 10^th October 2014 at about 06:40 am, when the claimant left his house and was travelling to his office at Municipal Corporation of Delhi (‘MCD’), Karkardooma by bicycle. He was hit by a mini-bus bearing registration No. DL-1PB-9872 (hereinafter, ‘offending vehicle’). FIR No.789/2014 was registered under Sections 279/338 of Indian Penal Code, 1860 (IPC) with P.S. Farsh Bazar and the driver had been arrested and charge-sheeted.

Driver and owner did not contest the claim petition before MACT and were proceeded ex-parte vide order dated 07^th August 2015. Driver and owner did not appear before this Court as well, and the matter was contested between the Insurance Company and claimant through their respective counsels, Mr. Harshit Singh and Mr. Manish Maini. Attempts for service was made on driver & owner and ultimately, they were served through publication; however, nobody has appeared for many dates since 2018 till 2026.

Offending vehicle was insured with the Insurance Company, however, the cheque against payment of premium had been dishonoured and this had been communicated by Insurance Company to the owner, as well as, to the Regional Transport Office (‘RTO’). MACT, however, relied on certain decisions to conclude that subsequent cancellation of insurance policy does not affect the rights of third-party, which accrue as on the date of accident and mere right of recovery had been granted.

Insurance Company was directed to pay the compensation amount with rights of recovery from driver & owner, who were held jointly and severally liable to pay the amount of compensation. Compensation of Rs.9,25,000/- along with 9% interest was awarded and directions for staggered release from fixed deposits was given.

Mr. Harshit Singh, counsel for Insurance Company, first placed the undisputed facts before the Court.

The insurance policy was effective from 19^th January 2014 to 18^th January. Subsequently, the insurance policy was cancelled due to dishonour of cheque on account of ‘insufficient funds’ on 20^th January 2014. The accident had occurred nine months thereafter on 10^th October 2014.

Communication regarding cancellation of the insurance policy was sent to the owner and RTO, as under:

The Court has perused these documents and finds them to be in order, proved by the testimony of Ms. Vinita Bajaj, Assistant Manager, Oriental Insurance Company (‘R3W1’). Return date of the cheque was 17^th January 2014. On 20^th January 2014, an endorsement schedule was issued which stated that, “it is hereby declared that consequent upon dishonour of the cheque, this policy has become void ab initio for want of consideration. Therefore, the Company shall have no liability of whatsoever nature under this policy.” Thereafter, on 21^st January 2014, a communication was addressed to the owner-Rajan Kumar (the insured), stating that the cheque had been dishonoured and that the insurance policy stands cancelled and, no claim shall be entertained.

On the same date, a communication was sent to the RTO, stating that the cheque had been dishonoured and the insurance policy stands cancelled from their end, “right from inception of the policy”. It was further noted that, “there is no cover for vehicle number DL-01PB-9872”. Notes from the dispatch register of the Insurance Company sent to owner-Rajan Kumar, as well as, to the RTO has been noted and the speed-post receipt has been exhibited.

Further, during the proceedings, notice was issued under Order XII Rule 8 of the Code of Civil Procedure, 1908 (‘CPC’) to owner of the offending vehicle to produce the original insurance policy, which had been declared ‘void ab initio’ on account of dishonour of the cheque, with all the details thereafter provided. The Insurance Company had taken an objection upfront, in their written statement, which has also been perused.

Mr. Harshit Singh, counsel for Insurance Company, relied upon the decisions of Supreme Court in Deddappa & Ors. v. Branch Manager, National Insurance Co. Ltd. (2008) 2 SCC 595, National Insurance Company Ltd. v. Seema Malhotra (2001) 3 SCC 151, National Insurance Company Ltd. v. Yellamma & Anr. (2008) 7 SCC 526, National Insurance Company Ltd. v. Parvathneni (2009) 8 SCC 785, United India Insurance Company Ltd. v. Laxmamma & Ors. (2012) 5 SCC 234, Oriental Insurance Company Limited v. Inderjit Kaur (1998) 1 SCC 371, New India Assurance Company Ltd. v. Rula & Ors. (2000) 3 SCC 195. Reliance has also been placed on Section 64VB of Insurance Act, 1938 (‘Insurance Act’) which provides that no risk is to be assumed, unless premium is received in advance.

Additionally, reliance was also placed on decisions of this Court in HDFC Ergo General Insurance Company Limited v. Chander Kala Devi 2023:DHC:4979 and Bhagwat Prasad Sharma & Anr. v. Satish Kumar & Anr. 2025:DHC:509.

Mr. Manish Maini, counsel for claimant, contended that once the insurance policy was issued, the Insurance Company was liable to cover the liability of insured/owner. Insurance Company could not be exonerated, merely because premium had not been paid due to dishonour of cheque. In any event, he stated that rights of recovery have been rightly granted. He further stated that the Insurance Company had consciously violated the provisions of Section 64 VB of Insurance Act, while issuing the insurance policy and assuming the risk without pocketing any premium. In his support, he placed reliance was placed on the decision of Supreme Court in Inderjit Kaur (supra) and decisions of this Court in Usha Aggarwal v. Pramod Kumar Gupta & Ors. 2013:DHC:6092, as also National Insurance Company Ltd. v. Poonam & Ors. 2014:DHC:1833.

Pursuant to the submissions, certain issues arose for consideration before the Court, inter alia, whether a cover note is an interim document which does not fully assume the risk; whether the risk is assumed on the date of issuance of the insurance policy and would the risk not be assumed on the date of receipt of payment; does the Insurance Company provide a caveat through the cover note that this will not amount to a contract of insurance, until premium has been received and to that extent, does the Insurance Company have the right of voidability of contract in case of dishonour of cheque or non-receipt of premium.

For the purposes of understanding these aspects, the Court appointed Mr. Sameer Nandwani, Advocate, who regularly appears in motor accident appeals as Amicus Curiae to provide assistance to the Court.

Mr. Nandwani, Amicus Curiae appeared along with Mr. Abhinav, Deputy Manager, Oriental Insurance Company Ltd. Mr. Nandwani stated that the cover note issued by the Insurance Company is equal to a certificate of insurance till the expiry of sixty days, after which, it comes to an end by efflux of time.

Otherwise, issuance of insurance policy crystalizes the contract in terms of assuming the risk. For this, he placed reliance upon the decision of this Court in Oriental Insurance Co. v. Vinod Kumar, 2007 SCC OnLine Del 609, the decision dealt with the question of law relating to third party liability of insurance company under the Motor Vehicles Act, 1988 (hereinafter, ‘MV Act’), even after the cheque issued by the insured had bounced and notice terminating the contract of insurance had been served. Court noted that under the law of contract, if one party commits fundamental breach of terms, the other party is entitled to terminate the contractual relationship and be absolved from performance. Default in payment is a fundamental breach of contract.

However, MV Act being a beneficial legislation, this aspect is treated differently to ensure that the legislative intent and benefit is not nullified by Insurance Companies on the basis of contractual terms to the contract. Notably, the Court noted that, “courts have always endeavoured to ensure maximum protection of the third-parties, who suffer as a result of road accident so that they are not penalized.”

In that case, cheque had been issued on 22^nd February 1997 [sic December] and the insurance policy was valid for a period of one year from 22^nd December 1997 onwards. The cheque was dishonoured and communication was made vide letter dated 7^th January 1998 to owner of the car that the insurance cover stood cancelled and no claim will be entertained.

The accident occurred on 6^th October 1998 much after the same. The Tribunal relied on Inderjit Kaur (supra) and Rula (supra) granting recovery rights. In their support, the Insurance Company relied on Seema Malhotra (supra). Supreme Court had also noted the Gazette Notification dated 17^th October 2002 issued by Insurance Regulatory and Development Authority (‘IRDA’) which stated as under:

The Court traversed various provisions of the MV Act and the Central Motor Vehicles Rules, 1989 (hereinafter, ‘MV Rules’) to provide its analysis, effectively stating that there are three stages of documentation by Insurance Company inter alia first, issuance of a cover note under Form 52 in MV Rules; second, issuance of a certificate of insurance; and third, issuance of the insurance policy. Once a cover note is issued, the same will be valid for a period of sixty days and not thereafter. After the expiry of that period, if the Insurance Company does not issue the insurance policy, the duty is on the Insurance Company to notify the registering authority under Section 147(4) of MV Act within seven days. The Court held that the Act does not provide for consequences of violation of Section 147(4) and, therefore, Insurance Company would not be liable to third parties, if there is a default in informing the registering authority.

However, once a certificate of insurance is issued followed by an insurance policy, as per Section 149(1) of MV Act, the Insurance Company would be entitled to pay third parties, even if they are entitled to avoid or cancel the policy or may have avoided or cancelled the policy. What would be left is only right of recovery, which was indeed granted. The Court recognized that in Inderjit Kaur (supra) and Rula (supra), the Insurance Company was held liable to pay compensation, even if the cover note was cancelled and recovery rights had been granted. Seema Malhotra (supra) was, however, distinguished as the facts related to a claim filed before the Consumer Court.

In a recent judgment of the Supreme Court in National Insurance Co. Ltd. v. Sunita Devi & Ors. 2025 SCC OnLine SC 1647, the issue related to the insurance policy issued for the offending vehicle which stood cancelled and the owner and the RTO had been informed prior to the date of accident. The Tribunal held that they have a right to recover from the owner. Insurance Company placed reliance upon Seema Malhotra (supra), Deddappa (supra) and Laxmamma (supra).

The Supreme Court noted that in Deddappa (supra), the Court had held that contract of insurance stood rescinded due to failure of consideration and intimation to that effect had been given. However, in exercise of powers under Article 142, the Insurance Company had been directed to compensate and recover the amount from the insured.

Even in Laxmamma (supra), despite the cancellation, the Court had upheld the right to pay and recover. In Sunita Devi (supra) itself, the Supreme Court noted that non-payment of premium would, in law, absolve the Insurance Company from liability to pay compensation, once intimation of cancellation has been sent to the parties concerned. However, in the final directions, the Court directed release of 50% compensation to claimants, which could not be recovered from them. Insurance Company was directed to recover this amount from the owner. As for the balance 50%, the claimants were entitled to recover the same from the owner.

Before diving into the various decisions, which counsel have cited, it would be apposite to extract the relevant provisions, as applicable. Though the accident occurred in 2014, the provisions of MV Act prior to the Motor Vehicles (Amendment) Act, 2019 (hereinafter, ‘2019 amendment’) would apply. For purposes of completeness, the discussion below accounts for post 2019 amendment provisions as well.

Relevant provisions (pre and post 2019 amendment) for the purposes of our discussion are extracted as under:

After the 2019 amendment, Section 147 continued to be in the same form, except, Section 147(4) and Section 147(5) became Section 147(5) and Section 147(6) respectively; Section 149(1) and Section 149(4) morphed into Section 150(1) and Section 150(4) respectively, though, with a notable omission of the ‘pay and recovery’ clause. Definitions provided under Section 145(b) and Section 145(d) prior to the 2019 amendment retained form, except, are now stated in Section 145(b) and Section 145(f).

Relevant provisions of the MV Rules, which deal with issuance of certificate of insurance, cover notes are extracted as under:

For the sake of completeness, Form 51 and Form 52, as provided in the MV Rules, are also extracted hereunder for reference:

Additionally, the relevant provision of the Insurance Act, Section 64VB, is extracted as under:

As can be seen from the provisions extracted above, MV Act has used the phrases policy of insurance, certificate of insurance and cover note rather interchangeably, thereby, muddying clear interpretation and application. An attempt is made below to demystify and declutter this aspect, employing, not only holistic interpretation of the relevant provisions of the MV Act and the MV Rules, but also judicial interpretations that precede.

Chapter XI of MV Act mandates insurance of motor vehicles against third-party risks. While Section 145 is the definition clause relating to the Chapter, Section 146(1) mandates that a motor vehicle can be used in a public place, only if there is a policy of insurance complying with the requirements of the Chapter.

As per Section 145(d) [Section 145(f) post 2019 amendment], the policy of insurance includes a certificate of insurance. Rule 141 of MV Rules also uses both the terms and specifies Form 51 as the mandated form for both policy of insurance/certificate of insurance. Such a policy must comply with certain requirements as prescribed under Section 147(1). Section 147(3) mandates that a policy shall be of no effect unless a certificate of insurance is issued in the prescribed form. A holistic reading of the above leads to the inexorable conclusion that the statute mandates that a contract of insurance comes into play once a policy of insurance/certificate of insurance is issued in the prescribed form viz. Form 51 and complies with the requirements specified in Section 147(1).

Section 149(1) [Section 150(1) post 2019 amendment] mandates that once a certificate of insurance/policy of insurance is issued in favour of the insured, and any judgment/award is passed in respect of liability as required under Section 147 or under Section 163A [Section 164 post 2019 amendment], then the insurer is mandated to pay to the successful claimant (decree holder) the sum awarded. This duty is mandatory and notwithstanding the insurer’s entitlement to avoid or cancel the policy, and even if the insurer has avoided or cancelled the policy.

It is, therefore, ex facie clear by the plain language of Section 149(1) [Section 150(1) post 2019 amendment] that once the policy of insurance/certificate of insurance is issued, the insurer steps into the judgment debtor’s shoes in respect of the liability, including costs and interest. This would include situations where the insurer would have issued the policy of insurance/certificate of insurance even though premium had not been received, or if received through a cheque, the cheque stood dishonoured.

The statutory obligation, therefore, kicks in on the issuance of the policy of insurance/certificate of insurance in the prescribed form. It is for the insurer to be careful and secure itself from mandatory liability to not issue a policy of insurance/certificate of insurance, in case the premium has not been finally received by the Insurance Company either through omission of the agent or due to dishonour of the cheque, or for any other reason. Insurance Company ought to issue a policy of insurance/certificate of insurance only when they actually receive the premium, or else they will be under the risk of the statutory mandate under Section 149(1) [Section 150(1) post 2019 amendment].

Section 64VB of Insurance Act conflates well with this mandate since it states that the risk of an insurer commences on the receipt of premium. However, there is an overlay through the special legislation of Motor Vehicles Act, which creates a deeming fiction that, despite the premium not being received, the Insurance Company chooses or opts to issue a policy of insurance/certificate of insurance, then the mandatory liability gets triggered. This interpretation also finds resonance in the judgment of a Single Judge of the High Court of Karnataka in Neelamma & Ors. v. Jetteppa & Anr. 2024 SCC OnLine Kar 27100.

A cover note which is quite a ubiquitous document issued by Insurance Companies either directly or through agents to persons, who propose a risk cover for their vehicle, is inherently an interim document but has engendered much dispute around it on the aspect of liability. However, the procedure under the MV Act and the MV Rules is quite clear and if it is followed by Insurance Companies, it would not create any complications.

Rule 142(1) of the MV Rules requires a cover note to be in Form 52, whereas, Rule 142(2) prescribes the validity of such a cover note for sixty days. This provision itself categorically denotes that the cover note is a document of an interim nature and survives only for sixty days.

Section 145(b) of the MV Act introduces a bit of a sidewind for this creature termed as ‘Cover Note’. Section 145(b) while defining ‘certificate of insurance’ includes within its purview “a cover note complying with such requirements as may be prescribed.” Potentially this could mean that a cover note is equal to a certificate of insurance and, therefore, once issued has a permanent character triggering mandatory liability under Section 149(1) [Section 150(1) post 2019 amendment] as also crystallizing the contract of insurance under Section 147(3).

However, the statute has to be read in a harmonious, holistic manner and needs to be interpreted to promote consistency in its application and its intent. If a cover note is taken as a certificate of insurance, then it ought to be in Form 51 instead of Form 52 under Rule 141 of MV Rules, as opposed to Rule 142. Both of these forms are distinctive, in that, Form 52 provides details of the insured, the vehicle insured, date of the commencement and expiry of insurance and persons or classes entitled to drive, the limitations, while Form 51 fleshes out a fair amount of detail on each of these aspects.

In the opinion of this Court, to provide some meaning to Section 145(b) would require interpreting the phrase, “includes a cover note complying with such requirements as may be prescribed” to mean a cover note which masquerades as a certificate of insurance and complies with all the requirements that a certificate of insurance ought to comply with i.e. Rule 141 read with Form 51 and Section 147(3).

If such an amplified cover note is issued, seeming to comply with all the formalities provided by MV Act and MV Rules for a certificate of insurance, though, titled as a cover note, the statute would deem it to be a certificate of insurance, thereby, triggering a mandatory liability which cannot be avoided under Section 149(1) [Section 150(1) post 2019 amendment].

Insurance companies ought to take note of this if they intend to issue what is only an interim document, i.e. a cover note while retaining the option of not issuing a policy of insurance/certificate of insurance after expiry of the validity of sixty days.

Section 147(4) [Section 147(5) post 2019 Amendment] categorically provides that a cover note not followed by a policy of insurance within the prescribed time [sixty days, as per Rule 142 (2)], requires the insurer to notify the registering authority or any authority prescribed by the State Government within 7 days of expiry of this sixty days’ period.

Therefore, after issuing the cover note, if the insurer chooses not to enter into a final contract of insurance, it has the option of not issuing the insurance policy after the expiry of sixty-day deadline. The duty to notify the registering authority under Section 147(4) [Section 147(5) post 2019 Amendment], though preceded by the phrase ‘shall’, has been interpreted to not attract any penal action in relation to such an omission, as per the decision of this Court in Vinod Kumar (supra).

In the opinion of this Court, the duty is mandated on the Insurance Company. Considering it is resident in the MV Act under Chapter XI, any omission to notify may be interpreted as the Insurance Company not wishing to avoid the contract of insurance and, therefore, liability. Omitting to notify the registering authority within 67 days of having issued the cover note, would effectively transfer the duty on the insured to chase the Insurance Company in order to confirm the insurance policy and the issuance of certificate of insurance. Being a just and beneficial legislation, this burden cannot be transferred to the insured, since it would effectively leave an insured unprotected only because of an omission by the Insurance Company.

In all practical terms, the insured assumes that it is covered once it has received a cover note and is cannot be ascribed with detailed knowledge of legal provisions in order to be cast with the duty to pursue the Insurance Company for crystallization of its contract of insurance. The duty would therefore, be on the Insurance Company to inform the owner if it does not wish to issue the certificate of insurance i.e. not crystallize the contract. Further, by bringing it to the notice of the registering authority, it ensures that it is officially aware that the concerned vehicle runs without a valid third-party liability insurance. The Insurance Company has an implicit duty to inform the insured as well to whom the cover note was issued.

As per the above discussion, the window available to an Insurance Company to avoid crystallizing a contract of insurance, is within 67 days of issuing a cover note. In case, it does not receive premium or the insurance policy during that period, the Insurance Company can choose to inform not only the registering authority, but also the insured that they will not issue the insurance policy or the certificate of insurance.

Till the time, the Insurance Company issues such a notification to the registering authority and to the insured, the assumption of risk would be with the Insurance Company. The cover note is, therefore, rightly an interim document and the Insurance Companies have been given a facility to issue an interim cover till all the other aspects fructify, inter alia the receipt of premium and other details required for issuance of a policy of insurance/certificate of insurance. To that extent, the cover note therefore holds the ground as far as liability is concerned.

Issuance of the cover note triggers an assumption of risk since the premium has been received either as direct transfer or by tendering of a negotiable instrument. A Negotiable Instrument tendered, as per the Negotiable Instruments Act, 1881 (‘NI Act’) is deemed to be a valid payment. This emanates out of the Explanation to Section 64VB (2) of Insurance Act which provides that premium may be tendered by postal money order or cheque sent by post.

The explanation to Section 64VB provides that, if premium is tendered by postal money order or cheque is sent by post, risk may be assumed on the date on which the money order is booked or the cheque is posted, as the case may be. As per Section 64VB (4) of the Insurance Act, if an insurance agent collects premium on an insurance policy on behalf of the Insurance Company, they are mandated to deposit, dispatch by post to the Insurance Company the premium so collected in full without deduction of his commission, within twenty-four hours of the collection, excluding bank and postal holiday.

Section 64VB(1) of the Insurance Act also provides that assumption of risk can also be taken if premium is “guaranteed to be paid by such person in such manner and within such time as may be prescribed or unless and until deposit of such amount, as may be prescribed, is made in advance in the prescribed manner”.

By notification dated 16^th October 2002, the IRDA published the Insurance Regulatory and Development Authority (Manner of Receipt of Premium) Regulations, 2002 (hereinafter, ‘IRDA Regulations’). Regulation no. 3 provides the manner of premium payments, which inter alia, includes cash, recognized negotiable instrument, postal money orders, direct transfers, etc.

Regulation no.4 of the IRDA Regulations provides for commencement of risk, which will be in consonance with the terms of Section 64 VB of the Insurance Act, except where premium has been paid in cash, the risk shall be after the receipt of premium by the Insurance Company.

Therefore, the question before the Court is whether the Insurance Company will be liable to seek recovery from the insured, rather than exoneration from payment of compensation. For this, it would be useful to advert to the judgments cited by the parties, which are discussed as follows:

On the issue of pay and recovery, reliance may also be placed upon the decision of Supreme Court in New India Assurance Co. v. Kamla, (2001) 4 SCC 342, where the Court was adjudicating the issue of a fake driving license and whether the Insurance Company would be liable to pay compensation to third parties. The Court traversed through the provisions of MV Act, notably, Section 147 and Section 149 and held that if an insurance policy has been issued in respect of the vehicle, the Insurance Company will be liable to pay the said amount to third parties and recover MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 35 of 46 such sum from the insured. Relevant observations of the Court are extracted hereunder:

It seems from the above, that while facts relating to cancellation of insurance policy may be different in each case, i.e. the cheque was dishonoured before the accident or the cheque was dishonoured after the accident, there is agreement in various Benches of the Supreme Court over the cases cited above, that there is a rescission of the contract of insurance. The only difference in the view, is regarding the liability of payment, despite the rescission of contract and recovery from the insured. MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 36 of 46 Predominantly, the Supreme Court has exercised its powers under Article 142 of Constitution to award recovery rights. Prior to the 2019 amendment, the proviso to Section 149(4) provided for recovery of the discharge of any liability by the Insurance Company from the insured.

Courts have consistently provided a right of recovery to the Insurance Company with the primary liability of payment. In the opinion of this Court, considering that Section 149(1)[Section 150(1) post 2019 amendment] of MV Act categorically provides that even though the Insurance Company is entitled to avoid or cancel the policy, or has avoided or cancelled the insurance policy, it is bound to satisfy the decree, in case a policy of insurance/certificate of insurance has been issued, it would not be able to wriggle out of the same purely on the basis of a statutory mandate.

The right of recovery is an added direction which is in the discretion of the Court, which can be awarded relying upon Section 65 of ICA and in view of the aspects not only provided as per the proviso to Section 149(4) of MV Act with respect to conditions providing breach of insurance policy. It has also been successively recognised by the Supreme Court in various decisions, in the interest of justice, since the insured would then have escaped liability without paying premium.

In furtherance to the principle of granting recovery rights, advertence may be made to Section 65 of ICA, which states as under:

Section 65 rides on the principle of restitution, whereby, the benefit which has been received in an agreement which is later discovered to be void has to be returned. As pithily discussed by R Yashod Vardhan in the chapter on Section 65 in Pollock & Mulla’s The Indian Contract Act (15^th edition), the section aims at preventing unjust enrichment and from preventing a party avoiding an agreement and retaining the benefits received under it. The section embodies the principle of quantum meruit, which does not create a new contract between the parties, but restores the advantage received by one party.

the Supreme Court elaborated upon the scope of Section 65 to cover agreements enforceable by law, which were later discovered to be void. Observations of the Court are extracted as under for ease of reference:

Therefore, upon a collective reading of the provisions of MV Act, MV Rules and Section 65 of ICA, this Court is of the opinion that recovery rights can be granted to the Insurance Company, upon them satisfying the awarded amount payable to third parties.

In view of the above analysis, this Court finds that the policy of insurance issued by the Insurance Company, effective from 19^th January 2014 and the accident having occurred on 10^th October 2014, during the period of its validity, applying Section 149(1) [Section 150(1) post 2019 amendment], despite the insurer having avoided or cancelled the policy, it MAC.APP. 610/2018 & MAC.APP. 45/2019 Page 39 of 46 shall still be liable to cover the compensation awarded to the claimant. However, as noted in paragraph no.68 above, recovery rights would have to be granted to the insurer, since no premium was received and the insured cannot go scot free for an insurance it never really paid for.

In view of the above discussion, the following principles can be culled out:

On the issue of quantum of compensation, claimant has sought that the functional disability be considered at 16% instead of 8% as awarded by the MACT. Permanent disability had been certified at 16% in relation to left lower limb, as proved by the disability certificate testified by Dr. Hemant Sharma (‘PW-2’).

Claimant was working as a Safari Karamchari in MCD and was stated to be earning Rs.10,000/- per month. Claimant was examined as PW1 and he stated that the injury had curtailed his working capacity and, therefore, he was unable to continue with his work.

In the cross-examination, he stated that he had been working as a temporary employee in EDMC and had not received reimbursement of medical expenses. Regularization of his service was due and his file had gone to higher authorities for approval. He further stated that he had come to the Court on foot for his cross-examination.

No other evidence has been filed by the claimant in order to support his plea for enhancement of the assessment of functional disability. As per the medical documents, it was stated that the patient was admitted with pain and swelling at multiple sides of the body, a lacerated wound over the forehead, right-side, inability to walk and difficulty in breathing. The operative procedure was performed on the tibia and on the fibula and the left femur along with locking plate. Considering the nature of injuries suffered, it seems to be a case of fractures which was dealt with by locking plates and therefore, the claimant would have been treated for it.

As regards the assessment of functional disability, reliance may be placed upon the decision of Supreme Court in Raj Kumar v. Ajay Kumar (2011) 1 SCC 343, the Supreme Court held that the Tribunal must assess not merely the extent of permanent disability but its actual impact on the claimant’s earning capacity, which may differ from the medical percentage of disability. This requires evaluating the claimant’s pre-accident vocation, the functions affected, and whether livelihood can still be earned despite the disability. The Court emphasised that disability and loss of earning capacity are distinct concepts, except in cases where evidence shows they coincide. Relevant paragraphs are extracted as under:

(emphasis added)

Accordingly, at best, functional disability will be enhanced to 10%.

As regards non-pecuniary damages, MACT awarded Rs. 1,00,000/-towards pain and suffering, which is sustained by this Court. However, compensation awarded under the head of loss of amenities of life may be enhanced, considering the nature and extent of the injuries to Rs. 1,00,000/-

Accordingly, the revised computation is as under:

*Future prospects wrongly added at a later stage

For the aforesaid reasons, compensation has been enhanced by Rs.1,03,000/- [“enhanced amount”].

Enhanced amount along with 9% interest per annum from the date of filing the petition shall be deposited before MACT within a period of four weeks by the Insurance Company, which shall be released as lumpsum within two weeks thereafter.

By order dated 9^th July 2018, this Court had directed the Insurance Company to deposit the entire originally awarded amount before MACT, and by order dated 11^th November 2022, 50% of the said amount had been released to the claimant. The balance compensation amount shall continue to be released as per the terms of impugned award.

In view of the above discussion, this Court does not intercede with the observation made by MACT in paragraph no. 23 whereby, rights of recovery against the driver and owner have been granted to the Insurance Company. Accordingly, the recovery rights granted by the MACT are upheld.

Accordingly, the appeals stand disposed of with above directions.

Pending applications, if any, are rendered infructuous.

Copy of this judgement be sent to concerned MACT.

Copy of this judgement shall also be sent to concerned bank.

Statutory deposit, if any, shall be refunded to Insurance Company, only if the order of deposit has been complied with.

Judgment be uploaded on the website of this Court.