Insurer Must Pay Third-Party Compensation Despite Premium Cheque Dishonour If Cancellation Not Informed To RTA: Bombay High Court

The Bombay High Court at Nagpur has held that an insurance company cannot escape its statutory liability towards a third party merely because the insurance premium cheque was dishonoured, if the insurer failed to inform the Regional Transport Authority (RTA) about the policy's cancellation.

Justice Pravin S. Patil referred to the Supreme Court's ruling in Oriental Insurance Co. Ltd. vs Inderjit Kaur and other (1998) and said,

“The Hon'ble Supreme Court has taken a view that issue regarding issuance of a policy by the Insurance Company creates statutory liability towards third party, therefore, in view of the provisions of the then Sections 147(5) and 149(1) of the Motor Vehicles Act, the Insurance Company became liable to indemnify the third parties in respect of the liability which that policy covered and to satisfy the awards of compensation in respect thereof notwithstanding its entitlement to avoid or cancel the policy for the reason that cheque issued in payment of the premium thereon had not been honoured.”

For context, Section 147 (5) provides that an insurer shall indemnify the persons specified in the policy while Section 149 deals with the duty of insurer to satisfy judgements and awards against persons insured in respect of third-party risks.

The appeal before the High Court was brought against an award passed by the Commissioner under the Employee's Compensation Act, directing compensation of Rupees 13,60,275 with 12% annual interest. The order held the insured vehicle owner and the insurance company jointly and severally liable to the claimant, who had sought compensation for the death of the vehicle's driver, Kishor Shende.

The insurance company challenged the award, arguing that the insurance premium cheque issued by the owner was dishonoured and the same was communicated to the owner on June 19, 2021—before the accident occurred—rendering the policy void ab initio.

However, the Court noted that the insurance company failed to inform the Regional Transport Authority (RTA) about the cancellation of the insurance policy as mandated by GR. 24 of the Tariff Rules.

“In the light of above legal position, in the present case, though it is admitted fact that before the date of accident the Insurance Company has duly informed the Respondent No.5/owner about the policy stating that same stands void ab initio from inception, it is clear that same was not informed to the Regional Transport Authority. In my opinion, once the policy of insurance was issued upon which Authorities and third parties are held entitled to act, the Insurance Company is duty-bound to inform its cancellation to the Authority, particularly, the Road Transport Authority of the region where the vehicle is registered,” the Court said.

It added, “This view is also supported by the Rules framed by the Tariff Advisory Committee Rules GR. 24 which states that in case of cancellation of insurance policy, the Insurer should inform the Regional Transport Authority (RTA), therefore, non-information to cancellation of policy to the Authority, would entitled the third parties to take the statutory benefits as held in the case of Inderjit Kaur (supra).”

The Court dismissed the appeal and directed the insurance company to pay the compensation to the claimants, while granting it the liberty to recover the amount from the vehicle owner.

Case Title: HDFC ERGO General Insurance Co. Ltd. v. Dipali & other

FIRST APPEAL NO. 129 OF 2026

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