Plying Vehicle Beyond Permit Area Is Breach of Policy; Insurer to Pay First and Recover: MP High Court

The Madhya Pradesh High Court at Indore has held that an insurance company cannot be saddled with ultimate liability to pay compensation where a vehicle involved in an accident was being plied in a State not covered under its permit, as such use constitutes a clear breach of the terms of the insurance policy under the Motor Vehicles Act, 1988. However, applying the settled “pay and recover” principle, the Court directed the insurer to first satisfy the award and thereafter recover the amount from the vehicle owner and driver.

Justice Pavan Kumar Dwivedi was dealing with an appeal filed by The Oriental Insurance Company Limited under Section 173 of the Motor Vehicles Act challenging an award passed by the Motor Accident Claims Tribunal, which had fastened liability on the insurer despite its defence of permit violation. The appeal arose out of a road accident that occurred on February 16, 2008, at Jamaalpura Square, Rampura Road, in Neemuch district of Madhya Pradesh.

The claimant, Nirmal, was working as a cleaner on a truck. Due to rash and negligent driving by the driver, the truck overturned, causing grievous injuries to the claimant, including fractures in the left hand and jaw, which required surgical implantation and resulted in permanent deformity. The Tribunal awarded compensation of Rs.1,41,300 but rejected the insurer’s contention that the vehicle lacked a valid permit to ply in Madhya Pradesh.

Appearing for the appellant insurance company, advocate Pradeep Gupta, assisted by advocates Bhaskar Agrawal and Bharat Yadav, contended that the permit issued for the vehicle authorised its operation only in Haryana, Delhi, Rajasthan and Uttar Pradesh. Relying on documentary evidence including permit verification reports and the insurance policy, it was argued that the vehicle was being plied beyond the authorised area on the date of the accident, in violation of Section 66 of the Motor Vehicles Act. Reliance was placed on recent Supreme Court decisions including Gohar Mohammed v. UPSRTC and K. Nagendra v. New India Insurance Co. Ltd. to contend that such breach absolves the insurer of liability.

On the other hand, counsel for the claimant, advocate Satish Jain, submitted that the insurer had failed to conclusively prove the breach, arguing that the permit documents were photocopies and that no official from the concerned RTO was examined. It was further contended that the claimant was a third party and, therefore, the insurer should be directed to pay the compensation irrespective of any alleged breach.

After examining the record, the High Court noted that the insurance company had led sufficient evidence to establish that the vehicle did not have a permit to operate in Madhya Pradesh. The Court relied not only on the documentary evidence but also on the admission made by the claimant during cross-examination that the vehicle lacked a permit for plying in the State. It was further observed that once the insurer discharged its initial burden, the onus shifted to the vehicle owner to prove the existence of a valid permit, which was not done as both the owner and driver remained ex parte.

The Court emphasised that compliance with permit conditions is not a mere formality but a statutory requirement under Sections 66 and 158 of the Motor Vehicles Act. Plying a transport vehicle outside the authorised area amounts to a fundamental breach of policy conditions. While holding that the insurance company could not be made ultimately liable, the Court applied the pay and recover principle in line with Supreme Court precedent, balancing the rights of accident victims with the contractual obligations of insurers.

Accordingly, the appeal was partly allowed, and while the insurer was directed to pay the awarded compensation to the claimant in the first instance, it was granted liberty to recover the same from the owner and driver of the offending vehicle. The appeal was disposed of with these directions.

Case Title: Branch Manager, The Oriental Insurance Co. Ltd v. Nirmal and 2 Ors

Date of Judgment: February 3, 2026

Bench: Justice Pavan Kumar Dwivedi