Provisions In Motor Vehicles Amendment Bill That Works Against The Interests Of Claimants

Provisions In Motor Vehicles Amendment Bill That Works Against The Interests Of Claimants

The amendments proposed to the Motor Vehicles Act as per the amendment Bill introduced in 2016 were widely touted to be progressive, mainly because they had provisions for ensuring road safety through increased penalties for violations. However, hidden under such seemingly progressive provisions were some provisions which worked against the interests of the claimants in motor accident claims cases. Live Law had pointed out that the Act introduced the concept of “limited liability of insurer”, by putting a cap on insurer’s liability in third party claim cases. The statutory liability of insurer was limited at Rs. 10 lakhs in case of death, and Rs.5 lakhs in case of grievous hurt. This led to widespread debates and in the Bill passed by the Lok Sabha during April 2017, the controversial provision dealing with limited liability was dropped. Now, in the Bill which is pending in the Rajya Sabha, there are some other provisions that affect the interests of claimants.

Limited Liability In No-Fault Cases

The 1994 amendment had introduced Section 163A in the Act, which provided for granting compensation on a structured formula on ‘no-fault’ basis. As per this provision, the claimant was not required to establish fault or negligence on the part of the offending vehicle, and was entitled to compensation on the basis of formula given in the Second Schedule of the Act. So, merely by establishing that one was a victim of road traffic accident, he would have got an assured sum based on his age and income as per the formula given in Second Schedule. This was intended to ease the burden of claimants, and to expedite the process of determination and grant of compensation.

In the Amendment Bill, Section 164 is the replacement of Sec.163A. The structured formula system of payment of compensation envisaged by Section 163A of the earlier Act on the basis of Second Schedule has been totally repealed. The Second Schedule has also been taken away. This provision contemplates payment of Rs. 5 lakhs in cases of death, and Rs. 2.5 lakhs in cases of grievous hurt.

While the tenor of Section 164 is in the nature of the earlier provision Section 140 (which has now been repealed by the Amendment) which provided for interim payment on no-fault basis, it in effect results in full and final settlement. Section 164(3) also indicates that claiming compensation under any other law is not barred. However, the newly inserted proviso in Section 165(1) states that acceptance of payment of compensation under Section 164 will result in lapse of claim petition.  Therefore, the maximum amount a claimant can get on no-fault basis is Rs. 5 lakhs in case of death and Rs. 2.5 lakhs in cases of grievous hurt. The higher cap fixed as per Section 164 is way too low, when compared to the compensation payable as per Sec.163A read with Second Schedule. So, the amount payable on ‘no-fault’ basis will be in effect reduced as per the amendment.

Time-limit of six months for filing claim

Sub-section(3) introduced to Section 166 states that the claim petition has to be filed within six months of the date of accident. In the original Act passed in 1988, there was a similar provision. But the said provision fixing time limit was deleted as per 1994 amendment. Therefore, a claim could have been filed at any time, without any limitation. Now, that provision has been brought back.

Significantly, the provision does not enable the tribunal to entertain belated application on any ground. It is settled law that a tribunal does not have the power to condone delay unless the Act specifically confers such power. Therefore, even if there are justifiable grounds for delay, the tribunal will be powerless to entertain the claim by condoning delay.

It goes without saying that this provision is harsh.  It may not be always practical and possible for the legal heirs of a deceased in an accident, or for an injured person, to rush to the Tribunal within six months of an accident. Six months is too little a time for a family to recover from the shock and trauma of a devastating road accident. Considering that fact, the legislature ought to have been more considerate, at least by enabling the Tribunal to condone delay on reasonable justification. While it is not suggested that there should not be any limitation of time at all, the time limit fixed should be reasonable, having regard to the emotional trauma and financial hardship which the victims might be undergoing within the initial period of six months after the accident. The general level of ignorance about legal remedies also ought to be taken into account. It is also pertinent to note that in general civil law, the time limit for a claim for compensation is three years.

Cancellation of policy due to dishonour of cheque drawn for premium

The amendment enables the insurer to avoid the policy on the ground of non-receipt of premium, by virtue of new section as Section 150 2(c), as per which the insurer can defend the action on the ground “that there is non-receipt of premium as required under section 64VB of the Insurance Act, 1938”.

However, earlier the law was otherwise as per judicial decisions. The decisions in New India Assurance Co Ltd v Rula & Others AIR 2000 SC 1082: (2000) 3 SCC 195 and Oriental Insurance Co Ltd v. Inderjit Kaur and others AIR 1998 SC 588: (1998) 1 SCC 371, had held that dishonour of cheque drawn towards payment of premium was not a ground for avoiding liability, and that having regard to the welfare objectives of third party insurance, the insurer should compensate the claimant and then recover the amount from the insured.

The Supreme Court had the occasion to consider the effect of dishonour of a cheque when subsequently the amount of premium has been accepted in cash by the insurer, in National Insurance Co Ltd v Abhaysing Pratapsing Waghela (2008) 9 SCC 133: (2008) 12 SCALE 5. Therein, a cover-note was issued upon receiving a cheque towards premium. The cheque, however, got dishonoured. Thereafter, the amount was paid in cash. However, in the meantime, an accident occurred. The court held that cover-note would come within the definition of certificate of insurance, and since the accident occurred during the subsistence of cover-note, the insurer cannot escape liability.

In Dedappa and others v Branch Manager, National Insurance Co Ltd AIR 2008 SC 767: (2008) 2 SCC 595 and United India Insurance v Laxmamma AIR 2012 SC 2817: (2012) 5 SCC 234, the court held the insurer had to intimate the concerned RTO regarding cancellation of policy so as to escape from liability.

It is worthy to bear in mind that Chapter 11 of the Motor Vehicles Act, 1988, makes insurance of motor vehicles against third party risks compulsory and no vehicle can be put on the road without a valid policy of insurance covering risks that may occur to third parties out of use of such motor vehicle. The insurance company, while issuing policy of insurance receiving cheque towards premium, enables the owner of the motor vehicle to ply the vehicle on the public roads. Whether the cheque is encashed and if not whether the policy is cancelled are all matters within the knowledge of the contracting parties namely insurer and insured. The menace caused to the general public by the insurance company enabling the use of such motor vehicles by issuance of policy of insurance is however not abated by their cancelling the policy behind the back of the beneficiaries who are the public at large in as much as the policy without any endorsement of cancellation remains in the possession of the insured who can continue to use the vehicle on the strength of the said policy till the period shown therein expires without any impediment in the use of the vehicle being caused by the authorities concerned. The amendment proposed at least ought to have imposed a condition that the insurer should intimate the RTO, in the light of principles stated in Dedappa and Laxmamma.  By enabling the insurer to unilaterally cancel the policy without notice to authorities, the risk of innocent public getting exposed to dangers of uninsured vehicles is increased. The provision disturbs the settled position of law that insurer has only ‘pay and recover’ option if there is subsequent breach or cancellation of policy, and tilts the balance unjustifiably in favour of the insurers.

Insurer can avoid liability without exercising ‘pay and recover’ option

The position of law regarding ‘pay and recover’ of insurer evolved through judicial decisions on the basis of statutory provisions as it stood before 2017 amendment can be summarized as follows:



  • The breach of conditions under clause (a) of sub-section (2) of Section 149 (corresponding to Sec.150(2)(a)) do not entitle the insurer to avoid liability.

  • Only the breach of condition under clause (b) of sub-section (2) of Section 149 enables the insurer to avoid the liability. Because, the breach of condition in clause (b) renders the policy void on the ground of fraud or misrepresentation of facts. Also because Section 147(4) permits insurer to insert conditions in the contract to limit or avoid liability only on the ground of clause (b) of sub-section (2) of Section 149, and any condition restricting liability on any other ground is rendered void.

  • So in cases of breach of conditions specified under clause (a) of Sec.149(2), the insurer will only get a pay and recover option. This means that the insurer has to first compensate the claimant(s) and after that it can recover the amount from the owner/insured. This is because of the operation of Sec.149(1)(corresponding to Sec.150(1) after amendment) which casts the obligation on the insurer to satisfy the award as if it was a judgment debtor, despite the fact that it was entitled to avoid or cancel the policy.

  • The proviso to Sec.147(4), and also Sections 147(5) and (7) fortified the position that insurer was entitled to recover the amount paid by it which it would not have been liable to pay but for the provision of the Act.


In Swaran Singh case, the insurers contended that the insurers should be permitted to avoid the liability in cases of violation instead of granting ‘pay and recover’ right. The court embarked upon a thread-bare examination of the provisions of Sec.149, so as to examine the issue.

The court held that the insurer would be entitled to avoid the policy only in situations covered by Sec.149(2)(b), wherein the policy is rendered void on ground of non-disclosure or misrepresentation of a material fact. The violations of conditions specified in Sec.149(2)(a) would not render the policy void, and in such cases the insurer only has the option of ‘pay and recover’. Reference was made to Sec.149(4) and (5) to make the above conclusions. Section 149(4) is incorporated as a statutory safeguard to prevent the insurers from including additional conditions for restricting coverage in a manner not contemplated by the Act. It says that any conditions, other than referred to in Sec.149(2)(b), included in the policy purporting to restrict the coverage would be of no effect. The proviso of the said sub-section (4) says that any sum paid by the insurer towards the discharge of any liability only by virtue of sub-section(4) would be recoverable from the owner. Explaining the said sub-section, the court in Swaran Singh held that  S.149(4) considered the right of the insurance company in regard to re-imbursement of the amount paid by them only in the context of a situation other than the one contemplated under S.149(2)(b). It would mean that except under the situation provided by S.149(2)(b), the insurer would not be in a position to avoid the liability because he has got rights against the owner under the above provision (Para 83, Swaran Singh, (2004) 3 SCC 297 at 335). Thus, for breach of conditions in Sec.149(2)(a), the insurer cannot avoid the liability and can only pay and recover.

Sec.149(5) enables the insurer to recover the amount paid in excess of the policy amount by virtue of the provisions of the section. If the insurance company is made liable to pay any amount, it can recover the entire amount paid to the third party on behalf of assured. Sec.149(7) fortifies the position by stating that the insurer would not be able to avoid its liability except in the manner provided for in sub-section(2). In the Swaran Singh case, the insurer attempted to make an argument to the effect that Sec.149(7) enabled the insurer to avoid liability even in cases of violations under Sec.149(2)(a). There was slight ambiguity in the usage of language in Sec.149(7), as it said that the insurer would be able to avoid liability only in the manner provided under Sec.149(2). Hence, the argument was made that all cases covered under Sec.149(2), including 149(2)(a) and 149(2)(b), enabled the insurer to avoid the liability in toto. However, the court refused to accept the said construction of Sec.149(7) attempted to by the insurers. It held that such an interpretation would defeat the beneficial intent of the statute, and made it emphatically clear that the liability could be avoided by insurer only in cases where the policy is rendered void due to circumstances mentioned under Sec.149(2)(b).

Now, it is interesting to note that the amendments proposed to this provision as per 2017 Bill reflect the line of argument adopted by insurers in Swaran Singh case.

The 2017 amendment has made the following fundamental changes. Section 150 is the provision as per the Amendment Bill which corresponds to Section 149 of the present Act:



  • Insurance companies are enabled to avoid policy on grounds specified in clauses (a), (b) and (c) of sub-section(2). Earlier, in the corresponding provision before amendment, i.e Section 149(4), the insurance company could have avoided policy only on the ground of clause (b) of sub-section(2). That meant that insurance company could have avoided policy only on the ground that policy was obtained by fraud or misrepresentation of facts. With respect to breach other conditions which were mentioned in clause (a) of Section 149(2), the insurance company could not have avoided the policy, but could only have sought for the option of recovering the amount from the owner after paying compensation to the claimant. Now, the corresponding clause, i.e Section 150(4) does not restrict the right of the insurer to include terms in the contract enabling the insurer to totally avoid the policy for breach of any of the conditions specified in sub-section(2).

  • Proviso in corresponding provision Sec.149(4) deleted: It was on the basis of proviso of Section 149(4) in the Act as it stood before the amendment of 2017 that the Supreme Court held in Swaran Singh (2004) 3 SCC 297 that in cases of breach of conditions specified in clause(a) of sub-section(2), the insurer has to first pay compensation to the victim and then seek recovery from the owner/insured.

  • Provisions corresponding to Sec.149(5) and 149(7) absent: It was the existence of sub-sections (5) and (7) in Section 149 which persuaded the Supreme Court to reject the plea of insurers in Swaran Singh (2004) 3 SCC 297 that on breach of conditions, insurers should be entitled to avoid the liability under the policy. The Supreme Court, on the basis of the said sub-sections, ruled that in such circumstances the insurer will only have the right to recovery from the insured after paying compensation to the victim.


The reasoning in Swaran Singh was based on Sec.149(4), the proviso to Secs.149(4) and 149(5). The changes brought in the said Section as per 2017 amendment reflects the contentions raised by the insurers in Swaran Singh case. It remains to be seen whether the said changes will enable the insurers to again reopen the issue to contend that on ground of breach of conditions, they are entitled to avoid the liability altogether.

The above provisions need further deliberations. It is hoped that during the winter session of Parliament, commencing from December 15, the Rajya Sabha will apply its mind on the pending Bill and address the concerns of the general public.

Manu Sebastian is an Advocate at High Court of Kerala.







[The opinions expressed in this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of LiveLaw and LiveLaw does not assume any responsibility or liability for the same]