UNITED INDIA INSURANCE CO. LTD.versusLAXMAMMA & ORS.

                       [2012] 5 S.C.R. 261


            UNITED INDIA INSURANCE CO. LTD.                            A
                                 v.
                       LAXMAMMA & ORS.
                (Civil Appeal No. 3589 of 2012)
                        APRIL 17, 2012
                                                                       B
          [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
 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.

     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                  F
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
to satisfy award of compensation passed in favour of the
claimants. The judgment of the High Court does not call       D
for any interference. However, the insurer shall be at
liberty to prosecute its remedy to recover the amount
paid to the claimants from the insured. [Paras 20 and 21]
[275-C-F]
                                                              E
     Oriental Insurance Co. Ltd. v. lnderjit Kaur and Ors.
(1998) 1 SCC 371: 1997 (6) Suppl. SCR 225; National
Insurance Co. Ltd. v. Seema Malhotra and Ors. (2001) 3 SCC
151: 2001 (1) SCR 1131; Deddappa and Ors. v. Branch
Manager, National Insurance Co. Ltd. (2008) 2 SCC 595:
                                                              F
2007 (13) SCR 287; New India Assurance Co. Ltd. v. Ruta
and Ors. (2000) 3 SCC 195: 2000 (2) SCR 148- referred to.
                    Case Law Reference:
    1997 (6) Suppl. SCR 225 Referred to          Para 5       G
    2001 (1) SCR 1131         Referred to        Para 5
    2007 (13 ) SCR 287        Referred to        Para 5
    2000 (2) SCR 148          Referred to        Para 14
                                                              H
    264       SUPREME COURT REPORTS             [2012] 5 S.C.R.


A       CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    3589 of 2012.

        From the Judgment & Order dated 11.11.2008 of the High
    Court of Karnataka at Bangalore in MFA No. 445 of 2007.

B         A.K. De, Rajesh Dwivedi, Debasis Misra, Devabrat Singh,
    for the Appellant.

        P.R. Ramasesh, Azeem A. Kalebudde for the
    Respondents.
c         The Judgment of the Court was delivered by

          R.M. LODHA, J. 1. Leave granted.

       2. The only question that arises for consideration in this
D appeal by special leave is: whether the appellant, United India
  Insurance Company Limited (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 premium got dishonoured and subsequent to the accident,
E the insurer cancelled the policy of insurance.

       3. The above question arises in this way. M. Nagaraj
  (husband of respondent no. 1 and father of respondent nos. 2
  and 3) was travelling in a bus bearing registration no. KA
  018116 on May 11, 2004. At about 8.50 a.m. on that day due
F to negligent application of brake by the bus driver, the back
  door of the bus suddenly opened and M. Nagaraj standing near
  the door fell down. He sustained grievous injuries and
  subsequently died. The respondent nos. 1 to 3, to be referred
  as claimants, filed a claim petition before the Motor .Accident
G Claims Tribunal, Bangalore (for short, 'Tribunal') seeking
  compensation of Rs. 15 lakhs. The present appellant, insurer
  was impleaded as respondent no. 2 while the owner of the bus
  was impleaded as respondent no. 1. The owner and the insurer
  contested the claim petition on diverse grounds. The .insurer
H
 UNITED INDIA INSURANCE CO. LTD. v. LAXMAMMA 265
             & ORS. [R.M. LODHA, J.]
raised the plea in the written statement that the insurance policy   A
dated April 14, 2004 issued by it covering the said bus for the
period April 16, 2004 to April 15, 2005 was not valid as the
premium was paid through cheque and the cheque got
dishonoured and, therefore, there was no liability on it to cover
the third party risk.                                                B

     4. The Tribunal on recording the evidence and after hearing
the parties held that the claimants were successful in proving
that on May 11, 2004 at 8.50 a.m. the deceased M. Nagaraj
was travelling in the bus and he fell down from the bus through      C
the door by sudden application of brake negligently by the driver
and died due to the injuries sustained in that accident. The
Tribunal also recorded the finding of fact on examination of the
documentary and oral evidence that cancellation of policy
because of non-payment of the premium was done by the
insurer after the accident had taken place and intimation of         D
cancellation was given to the owner on May 21, 2004 whereas
accident took place on May 11, 2004. The Tribunal, thus, held
that the insurer was liable to the claimants. The Tribunal in its
award dated June 28, 2006 held that claimants were entitled
to compensation in the sum of Rs. 6,01,244/- and apportioned         E
that amount amongst claimants. Aggrieved by the award of the
Tribunal, the insurer preferred appeal before the High Court. The
High Court dismissed the insurer's appeal on November 11,
2008. It is from this order that the present appeal has arisen.
                                                                     F
      5. Mr. A.K. De, learned counsel for the appellant
strenuously urged that having regard to the undisputed fact that
the cheque issued by the owner of the vehicle towards the
premium for insurance of vehicle was dishonoured, the contract
of insurance became void and the insurer could not be                G
compelled to perform its part of promise under the policy. He
submitted that no liability can be fastened on the insurers qua
third party if the policy of insurance is rendered void for want
of consideration to the insurer. Learned counsel submitted that
the view taken by this Court in Oriental Insurance Co. Ltd. v.
                                                                     H
    266        SUPREME COURT REPORTS               [2012] 5 S.C.R.


A lnderjit Kaur and others 1 has been diluted by the later decisions
  of this Court in the case of National Insurance Co. Ltd. v.
  Seema Malhotra and others 2 and Deddappa and others v.
  Branch Manager, National Insurance Co. Ltd. 3 . In the
  alternative, learned counsel for the insurer submitted that if the
B Court holds that the insurer is liable to pay compensation to the
  claimants, the amount so paid by the insurer to the claimants
  must be allowed to be recovered from the insured.

        6. Mr. P.R. Ramasesh, learned counsel for respondent no.
  4 (owner) supported the view of the High Court. He submitted
C that on the date of the accident, the policy was subsisting and
  the liability of the insurer continued and, therefore, the insurer
  cannot recover the amount paid to the claimants from the
  insured.

D        7. Section 64-VB of the Insurance Act, 1938 {for short,
    'Insurance Act') provides as under:

          "64-VB. No risk to be assumed unless premium is
          received in advance.- (1) No insurer shall assume any
          risk in India in respect of any insurance business on which
E
          premium is not ordinarily payable outside India unless and
          until the premium payable is received by him or 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
F         in advance in the prescribed manner.

          (2) For the purposes of this section, in the case of risks
          for which premium can be ascertained in advance, the risk
          may be assumed not earlier than the date on which the
G         premium has been paid in cash or by cheque to the
          insurer.

    1.   (1998) 1 sec 371.
    2.   c2001) 3 sec 151.
H 3. c2008) 2 sec 595.
UNITED INDIA INSURANCE CO. LTD. v. LAXMAMMA 267
            & ORS. [R.M. LODHA, J.]
     Explanation.- Where the premium is tendered by postal                A
     money order or cheque sent by post, the risk may be
     assumed on the date on which the money order is booked
     or the cheque is posted, as the case may be.

     (3) Any refund of premium which may become due to an
                                                                          8
     insured on account of the cancellation of a policy or
     alteration in its terms and conditions or otherwise shall be
     paid by the insurer directly to the insured by a crossed or
     order cheque or by postal money order and a proper
     receipt shall be obtained by the insurer from the insured,
     and such refund shall in no case be credited to the account          C
     of the agent.

     (4) Where an insurance agent collects a premium on a
     policy of insurance on behalf of an insurers, he shall
     deposit with, or dispatch by post to, the insurer, the               D
     premium so collected in full without deduction of his
     commission within twenty-four hours of the collection
     excluding bank and postal holidays.

     (5) The Central Government, may, by rules, relax the
     requirements of sub-section (1) in respect of particular             E
     categories in insurance policies.

     (6) The Authority may, from time to time, specify, by the
     regulations made by it, the manner of receipt of premium
     by the insurer."                                                     F

The above provision states that no risk is assumed by the
insurer unless premium payable is received in advance.

      8. The Motor Vehicles Act, 1988 (for short, 'the M.V. Act')
in Chapter XI deals with insurance of motor vehicles against              G
third party risks. Section 145 in that Chapter provides for
definitions: (a) authorised insurer, (b) certificate of insurance,
(c) liability, (d) policy of insurance, (e) property, (f) reciprocating
country and (g) third party.
                                                                          H
    268        SUPREME COURT REPORTS                  [2012] 5 S.C.R.


A        9. Section 146 mandates insurance of a motor vehicle
    against third party risk. Inter alia, it provides that no person shall
    use the motor vehicle in a public place unless a policy of
    insurance has been taken with regard to such vehicle complying
    with requirements as set out in Chapter XI. The owner of vehicle,
8   thus, is statutorily mandated to obtain insurance for the motor
    vehicle to cover the third party risk except in exempted and
    exception categories as set out in Section 146 itself.

        10. Section 147 makes provision for requirements of
  policies and limits of liability. Sub-section (5) thereof is relevant
C for the present purposes which reads as follows :

          "S. 147. - Requirements of policies and limits of
          liability.-

          (1)) to (4) xxx xxx xxx xxx xxx xxx
D
          (5) Notwithstanding anything contained in any law for the
          time being in force, an insurer issuing a policy of insurance
          under this section shall be liable to indemnify the person
          or classes of persons specified in the policy in respect of·
E         any liability which the policy purports to cover in the case
          of that person or those classes of persons."

        11. Section 149 deals with the duty of insurers to satisfy
  judgments and awards against persons insured in respect of
F third party risks. Sub-section (1) which is relevant for the present
  purposes reads as under:

          "S.149.- Duty of insurers to satisfy judgments and awards
          against persons insured in respect of third party risks.- (1)
          If, after a certificate of insurance has been issued under
G         sub-section (3) of section 147 in favour of the person by
          whom a policy has been effected, judgment or award in
          respect of any such liability as is required to be covered
          by a policy under clause (b) of sub-section (1) of section
          147 (being a liability covered by the terms of the policy)
H         or under the provisions of section 163A is obtained
 UNITED INDIA INSURANCE CO. LTD. v. LAXMAMMA 269
             & ORS. [R.M. LODHA, J.)

    against any person insured by the policy, then,                 A
    notwithstanding that the insurer may be entitled to avoid
    or cancel or may have avoided or cancelled the policy, the
    insurer shall, subject to the provisions of this section, pay
    to the person entitled to the benefit of the decree any sum
    not exceeding the sum assured payable thereunder, as if         B
    he were the judgment debtor, in respect of the liability,
    together with any amount payable in respect of costs and
    any sum payable in respect of interest on that sum by virtue
    of any enactment relating to interest on judgments."

      12. The above provisions came up for consideration in the
                                                                    c
case of lnderjit Kaur1 • That was a case where a bus met with
an accident. The policy of insurance was issued by the Oriental
Insurance Company Limited on November 30, 1989. The
premium for the policy was paid by cheque but the cheque was
dishonoured. The insurance company sent a letter to the             D
insured on January 23, 1990 that the cheque towards premium
had been dishonoured and, therefore, the insurance company
was not at risk. The premium was paid in cash on May 2, 1990
but in the meantime on April 19, 1990 the accident took place,
the bus collided with the truck and the truck driver died. The      E
truck driver's wife and minor sons filed claim petition. A three-
Judge Bench of this Court noticed the above provisions and
then held in paragraphs 9, 10 and 12 (pages 375 and 376) as
under:
                                                                    F
    "9. We have, therefore, this position. Despite the bar
    created by Section 64-VB of the Insurance Act, the
    appellant, an authorised insurer, issued a policy of
    insurance to cover the bus without receiving the premium
    therefor. By reason of the provisions of Sections 147(5)        G
    and 149(1) of the Motor Vehicles Act, the appellant
    became liable to indemnify third parties in respect of the
    liability which that policy covered and to satisfy awards of
    compensation in respect thereof notwithstanding its
    entitlement (upon which we do not express any opinion)
                                                                    H
    to avoid or cancel the policy for the reason that the cheque
    270        SUPREME COURT REPORTS                 [2012) 5 S.C.R.


A         issued in payment of the premium thereon had not been
          honoured.

          10. The policy of insurance that the appellant issued was
          a representation upon which the authorities and third
          parties were entitled to act. The appellant was not
B
          absolved of its obligations to third parties under the policy
          because it did not receive the premium. Its remedies in
          this behalf lay against the insured.

          12. It must also be noted that it was the appellant itself who
c         was responsible for its predicament. It had issued the
          policy of insurance upon receipt only of a cheque towards
          the premium in contravention of the provisions of Section
          64-VB of the Insurance Act. The public interest that a
          policy of insurance serves must, clearly, prevail over the
D         interest of the appellant."

       13. In lnderjit Kaur1 , the Court invoked the doctrine of public
  interest and held that the insurance company was liable to
  indemnify third parties in respect of the liability which the policy
E covered despite the bar created by Section 64-VB of the
  Insurance Act. The Court did leave open the question of
  insurer's entitlement to avoid or c~ncel the policy as against
  insured when the cheque issued for payment of the premium
  was dishonoured.

F       14. In New India Assurance Co. Ltd. v. Ru/a and others4,
  the Court was concerned with a question very similar to the
  question posed before us. That was a case where the
  insurance policy was issued by the New India Assurance Co.
  Ltd. in terms of the requirements of the M.V. Act but the cheque
G by which the owner had paid the premium bounced and the
  policy was cancelled by the insurance company but before the
  cancellation of the policy, accident had taken place. A two-
  Judge Bench of this Court considered the statutory provisions
  contained in the M.V. Act and the judgment in lnderjit Kaur1. In
H 4. (2000) 3 sec 195.
UNITED INDIA INSURANCE CO. LTD. v. LAXMAMMA 271
            & ORS. [R.M. LODHA, J.]
paragraph 13 (at page 200), the Court held as under:               A

    "13. This decision, which is a three-Judge Bench decision,
    squarely covers the present case also. The subsequent
    cancellation of the insurance policy in the instant case
    on the ground that the cheque through which premium
                                                                   8
    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 on 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      C
    have a claim against the Insurance Company and the
    owner of the vehicle would have to be indemnified in
    respect of the claim of that party. Subsequent cancellation
    of the insurance policy on the ground of non-payment of
    premium would not affect the rights already accrued in
    favour of the third party"                                     D

                                          (Emphasis supplied)

     15. In Seema Malhotra 2 , the Court was concerned with the
question whether the insurer is liable to honour the contract of   E
insurance where the insured gave a cheque to the insurer
towards the premium amount but the cheque was dishonoured
by the drawee bank due to insufficiency of funds in the account
of the drawer. In the case of Seema Malhotra 2 , the above
question arose from the following facts : the owner of a Maruti
                                                                   F
car entered into an insurance contract with National Insurance
Company Limited on December 21, 1993; on the same day
the owner gave a cheque of Rs. 4,492/- towards the first
instalment of the premium; the insurance company issued a
cover note as contemplated in Section 149 of the M.V. Act; the
car met with an accident on December 31, 1993 in which the         G
owner died and the car was completely damaged; on January
10, 1994 the bank on which the cheque was drawn by the
insured sent an intimation to the insurance company that the
cheque was dishonoured as there were no funds in the account
of the drawer and on January 20, 1994 the business concern         H
    272       SUPREME COURT REPORTS                [2012) 5 S.C.R.

A of the owner was informed that the cheque having been
   dishonoured by the bank, the insurance policy is cancelled with
   immediate effect and the company is not at risk. The widow
   and children of the owner filed a claim for the loss of the vehicle
  with the insurance company. When the claim was repudiated,
  they moved the State Consumer Protection Commission (for
8
  short, 'Commission'). The Commission rejected the claim of the
  claimants and held that insurer was justified in repudiating the
  contract as soon as cheque got bounced. The claimants moved
  the Jammu and Kashmir High Court. The High Court reversed
  the order of the Commission and held that the insurance
C company chose to cancel the insurance policy from the date
  of issuance of communication and not from the date the cheque
  was issued which got bounced. The matter reached this Court
  from the above judgment of the High Court. The Court referred
  to Section 64-VB of the Insurance Act, Sections 25, 51,52,54
D and 65 of the Indian Contract Act and the decisions of this Court
  in /nderjit Kaur1 and Rula4 and held (at pages 156 and 157)
  as under:

        "17. In a contract of insurance when the insured gives a
E       cheque towards payment of premium or part of the
        premium, such a contract consists of reciprocal promise.
        The drawer of the cheque promises the insurer that the
        cheque, on presentation, would yield the amount in cash.
        It cannot be forgotten that a cheque is a bill of exchange
F       drawn on a specified banker. A bill of exchange is an
        instrument in writing containing an unconditional order
        directing a certain person to pay a certain sum of money
        to a certain person. It involves a promise that such money
        would be paid.
G        18. Thus, when the insured fails to pay the premium
        promised, or when the cheque issued by him towards the
        premium is returned dishonoured by the bank concerned
        the insurer need not perform his part of the promise. The
        corollary is that the insured cannot claim performance from
H       the insurer in such a situation.
UNITED INDIA INSURANCE CO. LTD. v. LAXMAMMA 273
            & ORS. [R.M. LODHA, J.]
     19. Under Section 25 of the Contract Act an agreement        A
     made without consideration is void. Section 65 of the
     Contract Act says that when a contract becomes void any
     person who has received any advantage under such
     contract is bound to restore it to the person from whom he
     received it. So, even if the insurer has disbursed the       B
     amount covered by the policy to the insured before the
     cheque was returned dishonoured, the insurer is entitled
     to get the money back.

    20. However, if the in~ed makes up the premium even           C
    after the cheque was dishonoured but before the date of
    accident it would be a different case as payment of
    consideration can be treated as paid in the order in which
    the nature of transaction required it. As such an event did
    not happen in this case, the Insurance Company is legally
    justified in refusing to pay the amount claimed by the        D
    respondents."

      16. In Deddappa 3 , the Court was concerned with the plea
of the insurance company that although the vehicle was insured
by the owner for the period October 17, 1997 to October 16,       E
1998 but the cheque issued therefor having been dishonoured,
the policy was cancelled and, thus, it was not liable. That was
a case where for the above period of policy, the cheque was
issued by the owner on October 15, 1997; the bank issued a
return memo on October 21, 1997 disclosing dishonour of the       F
cheque with remarks "fund insufficient" and the insurance
company, thereafter, cancelled the policy of insurance by
communicating to the owner of the vehicle and an intimation to
the concerned RTO. The accident occurred on February 6, 1998
after the cancellation of the policy.
                                                                  G
     17. The Court in Deddappa3 again considered the relevant
statutory provisions and decisions of this Court including the
above three decisions in lnderjit Kaur1 , Rula4 and Seema
Malhotra 2• In para 24 (at page 601) of the Report, the Court
observed as under:                                                H
    274        SUPREME COURT REPORTS                   [2012] 5 S.C.R.


A         "24. We are not oblivious of the distinction between the
          statutory liability of the insurance company vis-a-vis a third
          party in the context of Sections 147 and 149 of the Act and
          its liabilities in other cases. But the same liabilities arising
          under a contract of insurance would have to be met if the
B         contract is valid. If the contract of insurance has been
          cancelled and all concerned have been intimated
          thereabout, we are of the opinion, the insurance company
          would not be liable to satisfy the claim."

  Then in para 26 (at page 602), the Court invoked extraordinary
C jurisdiction under Article 142 of the Constitution of India and
  directed the insurance company to pay the amount of claim to
  the claimants and recover the same from the owner of the
  vehicle.

D       18. We find it hard to accept the submission of the learned
  counsel for the insurer that the three-Judge Bench decision in
  lnderjit Kaur1 has been diluted by the subsequent decisions in
  Seema Ma/hotra 2 and Deddappa 3 • Seema Ma/hotra 2 and
  Deddappa 3 turned on the facts obtaining therein. In the case
E of Seema Malhotra 2 , the claim was by the legal heirs of the
  insured for the damage to the insured vehicle. In this peculiar
  fact situation, the Court held that when the cheque for premium
  returned dishonoured, the insurer was not obligated to perform
  its part of the promise. Insofar as Deddappa 3 is concerned, that
F was a case where the accident of the vehicle occurred after
  the insurance policy had already been cancelled by the
  insurance company.

       19. In our view, the legal position is this: where the policy
  of insurance is issued by an authorized insurer on receipt of
G 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 compensation
  by reason of the provisions of Sections 147(5) and 149(1) of
H the M.V. Act unless the policy of insurance is cancelled by the
UNITED INDIA INSURANCE CO. LTD. v. LAXMAMMA 275
            & ORS. [R.M. LODHA, J.]
authorized insurer and intimation of such cancellation has           A
reached the insured before the accident. In other words, where
the 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         8
insurance and sends intimation thereof to the owner, the
insurance company's liability to indemnify the third parties
which that policy covered ceases and the insurance company
is not liable to satisfy awards of compensation in respect
thereof.
                                                                     c
     20. Having regard to the above legal position, insofar as
facts of the present case are concerned, the owner of the bus
obtained 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,           D
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 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      E
became liable to satisfy award of compensation passed in
favour of the claimants.

     21. In view of the above, the judgment of the High Court
impugned in the appeal does not call for any interference. Civil
                                                                     F
appeal is dismissed. However, the insurer shall be at liberty to
prosecute its remedy to recover the amount paid to the
claimants from the insured. No order as to costs.

N.J.                                         Appeal dismissed.