Motor insurance: compulsory third-party cover and Claims Tribunals

1. Why insurance is compulsory

A victim of a road accident may win a decree against a driver or owner who cannot pay. Chapter XI therefore makes third-party insurance a condition of using a vehicle, and gives the victim a direct right against the insurer. This is legal or compulsory insurance, a statutory exception to privity: the third party is not a party to the policy, yet the insurer must satisfy the award in his favour.

2. Necessity for insurance: section 146

• s.146(1): no person shall use, except as a passenger, or cause or allow any other person to use, a motor vehicle in a public place unless there is in force a policy of insurance complying with Chapter XI. A vehicle carrying dangerous or hazardous goods must also have a policy under the Public Liability Insurance Act, 1991. A paid driver does not contravene the section unless he knows or has reason to believe there is no policy.
• s.146(2): the requirement does not apply to a vehicle owned by the Central or a State Government and used for purposes not connected with any commercial enterprise.
• s.146(3): the appropriate Government may by order exempt vehicles owned by the Government (where used for a commercial enterprise), a local authority, or any State Transport Undertaking, but only if that authority has established and maintains a fund in the prescribed manner to meet the liability.

Using an uninsured vehicle is an offence under s.196.

3. What the policy must cover: section 147

• It must be issued by an authorised insurer (s.145(a): an insurer registered with the IRDAI carrying on general insurance business).
• It must insure against liability for the death of or bodily injury to any person, including the owner of goods or his authorised representative carried in the vehicle, and for damage to property of a third party, caused by or arising out of the use of the vehicle in a public place (s.147(1)(b)(i)).
• It must cover death of or injury to any passenger of a transport vehicle, except gratuitous passengers of a goods vehicle (s.147(1)(b)(ii)).
• Injury is deemed to arise from use in a public place if the act or omission that led to the accident occurred in a public place, even if the victim was not in one (Explanation).
• The Central Government prescribes a base premium for third-party death and grievous hurt cover, in consultation with the IRDAI (s.147(2)).
• The policy has no effect until a certificate of insurance is issued (s.147(3)); a cover note not followed by a policy must be reported to the registering authority (s.147(5)).

Own damage, personal accident cover for the owner-driver and add-ons are contractual, not compulsory.

4. Settlement and the insurer’s duty: sections 149 and 150

Section 149 introduced a settlement procedure. On information of the accident, from the claimant, through the police accident information report (s.159) or otherwise, the insurer designates an officer, who may make a settlement offer before the Claims Tribunal within thirty days. If accepted, the Tribunal records the settlement as a consent award; if rejected, the claim proceeds on merits.

Section 150(1): once a certificate of insurance has been issued, the insurer must pay the person entitled under a judgment or award in respect of a liability required to be covered, notwithstanding that it may be entitled to avoid or cancel, or may have cancelled, the policy, as if that person were a decree-holder, together with costs and interest.

Section 150(2) lists the only defences. The insurer, if it had notice of the proceedings, may defend on the ground:

• (a) of breach of a specified policy condition: (i) use for hire or reward without a permit, for organised racing, for a purpose not allowed by the permit, or a two-wheeler without a side-car where required; (ii) driving by a named excluded person, by any person not duly licensed, by a person disqualified, or under the influence of alcohol or drugs as laid down in s.185; (iii) injury caused by war, civil war, riot or civil commotion;
• (b) that the policy is void for non-disclosure of a material fact or a false representation; or
• (c) that the premium was not received as required by s.64VB of the Insurance Act.

Other policy restrictions are of no effect against third parties (s.150(4)), and the insurer cannot avoid liability otherwise than under s.150(2) (s.150(5)). Section 170 lets the Tribunal implead the insurer to contest on all grounds where the insured colludes or fails to contest.

5. The licence defence and “pay and recover”

In National Insurance Co. Ltd. v. Swaran Singh, 2004 INSC 4, (2004) 3 SCC 297, a three-judge Bench, decided under the old s.149(2)(a)(ii), the Court laid down:

• the insurer must prove the breach, and also that the owner-insured was at fault in not taking reasonable care to see that the driver was licensed; a mere absence or defect of licence is not enough;
• the breach must be fundamental, and the Tribunal may look at whether it contributed to the accident, so that a technical defect (a licence for a different class of light vehicle, for instance) may not absolve the insurer;
• even where the insurer proves the defence, the Tribunal may direct it to pay the third party and recover the amount from the owner.

In United India Insurance Co. Ltd. v. Lehru, 2003 INSC 133, (2003) 3 SCC 338, the Court held that where the owner had satisfied himself that the driver held a licence that appeared genuine and that he could drive, there was no breach by the owner even if the licence later proved to be fake.

The substituted s.150 does not reproduce the old provisions on recovery from the insured. Courts have continued to use the pay-and-recover direction, which rests on the insurer’s statutory duty to the victim under s.150(1); whether and how far it survives the 2019 text is being worked out in the High Courts, so write it as the settled practice under Swaran Singh and note the change in the statute.

6. No-fault liability, hit and run and the Fund

• s.164: the owner or the authorised insurer must pay ₹5 lakh for death and ₹2.5 lakh for grievous hurt, without the claimant pleading or proving negligence. A claimant who accepts s.164 compensation through the s.149 procedure loses his s.166 claim (second proviso to s.166(1)).
• s.161: hit and run compensation under the Central scheme.
• s.164B: the Motor Vehicle Accident Fund, constituted to provide compulsory insurance cover to all road users, pays for treatment (including the golden hour scheme under s.162), hit and run cases and other prescribed cases.

7. Claims Tribunals: powers and procedure

• s.165: the State Government constitutes Motor Accidents Claims Tribunals for claims for death, bodily injury and damage to third-party property, including s.164 claims.
• s.166: application by the injured, the owner of property, the legal representatives, or an agent; the police accident information report may be treated as an application; under s.166(3) no application is entertained unless made within six months of the accident.
• s.168: the Tribunal holds an inquiry, gives the parties a hearing, and makes an award determining just compensation and specifying the amount payable by the insurer, owner or driver.
• s.169: summary procedure; powers of a civil court for taking evidence on oath, enforcing attendance and compelling production; it may take the help of persons with special knowledge; and since 2019 it has the powers of a civil court in executing its award as a money decree (s.169(4)).
• s.173: appeal to the High Court within ninety days; no appeal where the amount in dispute is less than ₹1 lakh.
• s.174: recovery as arrears of land revenue; s.175: civil courts barred.

8. Problem

A, a KSRTC conductor with no driving licence, drives the bus and meets with an accident causing the death of ten passengers. Is the insurance company liable to pay compensation? (January 2026; the June 2025 version had twenty passengers)

Issue. Whether the insurer can avoid liability to the passengers because the person driving held no licence, and who pays if it can.

Law. Passengers of a transport vehicle must be covered (s.147(1)(b)(ii)). The insurer must satisfy the award notwithstanding any right to avoid the policy (s.150(1)), but may defend on the ground that the vehicle was driven by a person not duly licensed (s.150(2)(a)(ii)). It must prove the breach and that the owner was at fault in allowing it (Swaran Singh); even then the Tribunal may direct it to pay and recover from the owner. A State Transport Undertaking may be exempted from compulsory insurance under s.146(3) if it maintains its own fund.

Application. First, check whether the bus was insured at all. KSRTC, as a State Transport Undertaking, may operate under an exemption order and an accident relief fund instead of an insurance policy; if so, there is no insurer, and KSRTC itself, as owner, is liable from its fund under s.166 and s.164. If the bus was insured, the conductor plainly held no licence, so the breach exists. The insurer must still show that KSRTC was at fault: if the conductor took the bus without authority, KSRTC may argue it committed no breach, but an undertaking that leaves the bus where a conductor can drive it, or allows it, will be held to have failed in reasonable care. The victims are third parties who had no part in the breach. Following Swaran Singh, the Tribunal will direct the insurer to pay the legal representatives of the ten passengers and recover the amount from KSRTC. The conductor is personally liable in tort and is guilty of driving without a licence (s.181) and, if negligent, of causing death by negligence under s.106 of the Bharatiya Nyaya Sanhita, 2023. The legal representatives may file claims under s.166 within six months, or take s.164 compensation.

Conclusion. The insurer (if any) has a defence against KSRTC but not against the passengers; it will be made to pay the passengers and recover from KSRTC. If the bus was covered by a s.146(3) exemption, KSRTC pays from its fund.

How this is examined

“Discuss the compulsory insurance of motor vehicles under the Motor Vehicles Act, 1988” (February 2025): sections 1 to 6. “Explain the powers and procedures of the Motor Accident Claims Tribunal” (January 2026): section 7. The unlicensed conductor problem was set in January 2026 and June 2025. Cite the substituted sections and say once that s.140 and s.163A no longer exist.