The Supreme Court of India, in a judgment delivered on November 10, 2025, affirmed the ‘pay and recover’ principle, directing an insurance company to pay compensation to a motor accident claimant despite a clear breach of the insurance policy by the vehicle owner.
The Court, comprising Justice Sanjay Karol and Justice Manoj Misra, held that The Oriental Insurance Company Limited must first satisfy the award granted by the Motor Accidents Tribunal and was then granted the liberty to recover the amount from the owner of the vehicle.
The judgment, authored by Justice Manoj Misra, arose from Civil Appeal No. 013509 of 2025 (Akula Narayana v. The Oriental Insurance Company Limited & Anr.). The apex court set aside the judgment of the High Court for the State of Telangana, which had completely absolved the insurer of its liability.
Background of the Case
The appeal was filed by the claimant, Akula Narayana, against an order of the Telangana High Court dated June 8, 2022. The High Court had allowed the appeal of The Oriental Insurance Company Limited (the Insurer) and set aside an award passed by the Motor Accidents Tribunal on April 29, 2021.
The Tribunal had initially held the Insurer (first respondent) and the vehicle owner (second respondent) jointly and severally liable to pay compensation to the claimant. The Tribunal’s conclusion was based on a statement made during cross-examination by the insurer’s administrative manager, who admitted that the insurer had “collected additional premium for carrying conductor and cleaner.” Based on this, the Tribunal concluded that the deceased, a passenger, would be a third party under the policy.
The High Court overturned this finding. It held that while the insurer might have collected additional premium for a driver, conductor, and cleaner, the “policy would not cover the risk of any other person or passenger.” Furthermore, the High Court noted that the vehicle, a five-seater, was carrying nine persons at the time of the accident, which constituted a “clear breach of the terms and conditions of the policy.” Consequently, the High Court absolved the insurer of all liability.
The claimant, stating that it was difficult to recover the compensation from the vehicle owner, subsequently appealed to the Supreme Court.
Arguments Before the Supreme Court
The learned counsel for the appellant (claimant) submitted that since an additional premium was collected for a driver, conductor, and cleaner, the policy covered the risk of at least three persons, even if they were passengers, citing Mata Ram versus National Insurance Company Limited (2018) 18 SCC 289.
In the alternative, the appellant argued that even if there was a violation of policy conditions, the insurer could not be fully relieved of its liability. Relying on the principle established in National Insurance Company Limited versus Swaran Singh (2004) 3 SCC 297 and Shamanna & Anr. versus Divisional Manager, Oriental Insurance Company Limited & Others (2018) 9 SCC 650, the appellant contended that the insurer should be directed to pay the compensation and recover it from the owner.
Conversely, the learned counsel for the insurer (first respondent) argued that the policy in question was a statutory policy and that a “gratuitous passenger, other than driver, conductor and cleaner, is not a third party.” It was further submitted that the vehicle, a five-seater, was “admittedly carrying nine passengers,” and this breach of condition meant the insurer could not be held liable.
Court’s Analysis and Decision
The Supreme Court noted that the insured (vehicle owner) had not filed any appeal against the High Court’s order. Therefore, the apex court framed the sole question for consideration as “whether the High Court should have completely absolved the insurer of its liability or ought to have directed the insurer to pay with liberty to recover the same from the vehicle owner.”
The Court observed that the contract of insurance was not disputed. Justice Misra, writing for the bench, stated: “Where the contract of insurance is not disputed, even on breach of insurance conditions, this Court had allowed recovery of compensation from the insurer by giving right to the insurer to recover the same from the vehicle owner. The pay and recover principle has been consistently followed…”
The bench further cited a recent pronouncement in Rama Bai v. Amit Minerals (2025 SCC OnLine SC 2067), where the ‘pay and recover’ principle was applied.
Following this consistent line of judicial precedent, the Supreme Court allowed the claimant’s appeal. The Court held: “Following the aforesaid decisions, we deem it appropriate to allow the appeal by directing that the first respondent (i.e., the insurer) shall satisfy the award, though, however, it can recover the amount so paid from the insured (i.e., owner of the vehicle).”
The appeal was allowed to the extent of this direction.
