Who pays accident victims — the vehicle owner or the insurance company? Supreme Court clears the air

Q: What was this case about?

This case arose out of a tragic road accident involving a utility van in Madhya Pradesh. The van lost control and fell into a gorge, leading to several deaths. Families of five deceased persons, including a student, a catering worker, a painter, a postal employee and an unemployed man, filed claim petitions seeking compensation. Some of the victims had been passengers in the van, while others were pedestrians caught in the accident.

Q: What did the High Court decide?

The Madhya Pradesh High Court had held that the van was not supposed to carry passengers under the terms of the insurance policy. On that basis, it passed a “pay and recover” order, directing the insurance company to pay the victims first and then recover the money from the van’s owner, Shyam Lal.

Q: Why did the owner challenge this in the Supreme Court?

The owner argued that his vehicle was properly registered as a utility van with a valid contract carriage permit. The registration certificate showed that it could carry five people including the driver in addition to goods. He pointed out that the insurance company had itself issued a comprehensive package policy after verifying these documents. Therefore, it was wrong for the High Court to treat the van as a goods vehicle and pass a pay-and-recover order.

Q: What was the insurance company’s argument?

The insurer claimed that there was overloading in the van. They argued that more than four passengers were being carried, pointing to the fact that five separate claim petitions had been filed. They also referred to allegations that nine people had died in the accident, which they said showed that the van was carrying more passengers than permitted under the policy.

Q: How did the Supreme Court respond?

The Court rejected the insurer’s argument. It explained that one of the claimants was actually a pedestrian, not a passenger, and not everyone rescued from the accident site could be assumed to have been inside the van. It noted that the van was registered as a utility vehicle with a seating capacity of five including the driver, and had a contract carriage permit. The judges emphasised that a contract carriage is legally allowed to carry passengers for hire, unlike a goods carriage, which is only for goods.

Q: Why did the Court hold the insurance company liable?

The Supreme Court observed that the policy was issued after the insurer examined the registration certificate and the permit. Both documents clearly showed that the van could carry passengers as well as goods. The Court also noted that the insurer admitted the van had a dual structure, half for goods and half for passengers. Since the insurer had accepted these facts while issuing the policy, it could not later deny liability.

Q: What was the final ruling?

The Supreme Court set aside the High Court’s order. It held that the entire liability to pay compensation rested with the insurance company, and there was no basis for shifting the burden onto the owner through a pay-and-recover order.

Case Title: Shyam Lal v. Shriram General Insurance Co Ltd and Others

Bench: Justices K Vinod Chandran and N V Anjaria

Judgment Date: September 4, 2025