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Shamanna & Anr. v. The Divisional Manager, The Oriental Insurance Co. Ltd. & Ors.

Civil Appeal · 2018 INSC 678Decided 8 Aug 2018
Civil Appeal No. 8144 of 2018
Justice Ranjan Gogoi · Justice R. Banumathi

Background

The appellants' son, Shankareppa, died after being thrown from a negligently-driven jeep whose door suddenly opened. The Motor Accident Claims Tribunal awarded Rs. 3,55,500 compensation and, because the driver lacked a valid licence (a breach of the insurance policy), ordered the insurer to pay the claimants first and recover the amount from the vehicle's owner (the "pay and recover" principle). The Karnataka High Court enhanced the compensation to Rs. 4,94,700 but reversed the "pay and recover" direction, holding that only the vehicle owner, not the insurer, was liable to pay, reasoning that the Supreme Court alone (under Article 142) could direct an insurer to pay and later recover.

Decision Breakdown

The Supreme Court held that the "pay and recover" principle is not a special Article 142 power exclusive to itself, but flows from the ordinary statutory scheme for third-party risks established in National Insurance Co. v. Swaran Singh (2004) and reaffirmed in later rulings, where a licence/policy breach is proved, the insurer must first indemnify the third-party claimants and may then separately recover the amount from the insured owner, including by execution proceedings rather than a fresh suit. The Court found the High Court had wrongly relied on a doubt raised in National Insurance Co. v. Parvathneni, noting that the reference to a larger bench in that case had since been closed without disturbing the Swaran Singh line of authority. It therefore restored the Tribunal's "pay and recover" direction while affirming the High Court's enhanced compensation figure, partly allowing the appeal with no order as to costs.

Lesson Learnt

When a vehicle's driver lacks a valid licence, the insurance company must still pay compensation to accident victims or their families up front, and can only recover that amount from the vehicle's owner afterward: victims are not left to chase the owner directly for their due compensation.

Official source (sci.gov.in)View Judgment (PDF)

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