The Nagpur Bench of the Bombay High Court has held that an insurer must pay compensation to third party claimants even when the premium cheque was dishonored and the insurer had informed the vehicle owner about it.
The Court held that the insurer’s statutory liability towards third parties is separate from its contractual dispute with the vehicle owner.
What happened?
Kishor Shende was working as a driver of a goods carrier mini truck owned by Zulesh Meshram.
On July 27, 2021, the vehicle met with an accident near Bhidi in Wardha district while Kishor was driving towards Nagpur. He suffered fatal injuries and died on August 1, 2021.
His family members filed a claim under the Employee’s Compensation Act, 1923. The Commissioner awarded ₹13.60 lakh with interest at 12% per annum.
HDFC ERGO General Insurance challenged the award before the High Court. The insurer said the premium had been paid through a cheque, which was dishonoured on June 8, 2021.
It informed the vehicle owner about the dishonour on June 12, and the owner received the communication on June 19, before the accident. The insurer argued that the policy had therefore become void from inception.
What did the Court hold?
The Court noted that the insurer had informed the vehicle owner about the dishonoured cheque and cancellation of the policy.
However, it had not informed the Regional Transport Authority (RTA) about the cancellation.
The Court referred to General Regulation 24 of the Tariff Advisory Committee Rules. It requires an insurer to inform the concerned RTA about cancellation of a motor insurance policy.
The Court held that once an insurance policy is issued, third parties and authorities are entitled to rely on it. The insurer therefore continued to have a statutory obligation towards the third party claimants.
The Court relied on the Supreme Court’s decision in Oriental Insurance Co. Ltd. v. Inderjit Kaur. It held that an insurer cannot avoid its statutory liability towards third parties merely because the premium cheque was dishonoured.
Insurer must pay first
The High Court applied the pay and recover principle. HDFC ERGO was directed to pay the compensation to the claimants.
It was also given the right to recover the amount from the vehicle owner. The First Appeal was dismissed.
How does this affect you?
If you are a third party claimant in a motor accident, a dispute between the insurer and vehicle owner over payment of the premium does not necessarily end your claim against the insurer.
The judgment also highlights the importance of following the prescribed cancellation process. Informing the vehicle owner alone was not enough in this case. The insurer also had to inform the concerned RTA.
For vehicle owners, a dishonoured premium cheque should not be ignored. Even if the insurer pays the third party claimant, it may later recover the amount from the vehicle owner.
Source: Judgment of the Bombay High Court, Nagpur Bench, First Appeal No. 129 of 2026.
