The Supreme Court of India has affirmed an order directing an insurance company to first pay compensation to the dependents of a road accident victim and then recover the amount from the owner of the offending vehicle, which was plying on a route for which it had no permit.
In the judgment delivered on October 29, 2025, a bench comprising Justice Sanjay Karol and Justice Prashant Kumar Mishra dismissed appeals (arising out of SLP (C) Nos. 7139-7140 of 2023), holding that a deviation from the permitted route constitutes a violation of the permit terms. However, the bench ruled that this violation does not absolve the insurer from its statutory liability to the third-party victim, justifying the application of the ‘pay and recover’ principle.
The case, K. Nagendra v. The New India Insurance Co. Ltd. & Ors., settles the legal question of “whether any deviation from the prescribed route as per the permit granted by the state transportation authority, would impact on the liability of the Insurance Company for any accident which may take place while the vehicle is on such a deviated route.”
Background of the Case
The matter originated from a fatal accident on October 7, 2014, when Srinivasa alias Murthy was struck by a bus (bearing registration number KA-52-9099) while riding his motorcycle. The accident, attributed to the rash and negligent driving of the bus driver, resulted in the on-the-spot death of Mr. Murthy.
The deceased’s dependents, the appellant(s), filed Claim Petition No. 566/2014 before the Senior Civil Judge and Addl. MACT, Channapatna, seeking Rs. 50,00,000/- in compensation. They submitted that the deceased, the sole earning member of the family, earned Rs. 15,000/- per month from a Shamiyana Centre and a Ration Shop.
On December 14, 2016, the Tribunal awarded the claimants Rs. 18,86,000/- with 6% interest, assessing the deceased’s notional income at Rs. 8,000/- per month.
Proceedings at the High Court
Both the claimants and the insurance company challenged the Tribunal’s order before the High Court of Karnataka at Bengaluru. The claimants (MFA No. 2947 of 2017) sought enhancement of compensation. The insurance company (MFA No. 1024 of 2018) challenged the order, arguing a violation of policy conditions.
In its common judgment on September 25, 2019, the High Court partly allowed both appeals. It reassessed the deceased’s monthly income at Rs. 15,750/-, added 40% for future prospects, deducted 1/4th for personal expenses (as there were 4 dependents), and applied a multiplier of 16. The total compensation was enhanced to Rs. 31,84,000/-.
Arguments and High Court’s ‘Pay and Recover’ Order
The insurance company contended that the bus driver was operating the vehicle on a route not covered by its permit. It was argued, and admitted by the parties, that the permit covered the route from Bengaluru to Mysore, but the driver was not authorized to enter Channapatna City, where the accident occurred.
Relying on the Supreme Court’s decision in Amrit Paul and Anr. v. TATA AIG General Insurance Company & Ors. (2018) 7 SCC 558, the High Court accepted the insurance company’s contention regarding the permit violation. Consequently, the High Court directed the insurance company to satisfy the award by paying the enhanced compensation to the claimants, but granted it the right to recover the said amount from the owner of the bus (the appellant, K. Nagendra).
Supreme Court’s Analysis and Decision
The vehicle owner appealed this ‘pay and recover’ direction in the Supreme Court. The apex court’s judgment examined the correctness of applying this principle for a permit route deviation.
The bench, led by Justice Karol, observed that the fact of the deviation was undisputed: “The record reveals that the offending vehicle did not have the permit to enter Channapatna City, where the accident took place. This position is not in dispute. Unquestionably, therefore, the terms of the permit have been deviated.”
The Court reviewed its prior judgments on the ‘pay and recover’ doctrine, citing National Insurance Co. Ltd. v. Swaran Singh (2004) 3 SCC 297, which established that a tribunal has the power to direct an insurer to pay first and recover later, even if a defence raised by the insurer is accepted. The Court also noted New India Assurance Co. v. Kamla (2001) 4 SCC 342, which held that while an insurer is not liable to the insured for a policy condition breach, it remains “statutorily liable to pay compensation to third parties” and can recover from the insured.
The judgment balanced the rights of the victim against the contractual terms of the insurance policy. The Court observed, “To deny the victim/dependents of the victim compensation simply because the accident took place outside the bounds of the permit… would be offensive to the sense of justice, for the accident itself is for no fault of his. Then, the Insurance Company most certainly ought to pay.”
At the same time, the Court recognized the insurer’s position: “At the same time though, when an Insurance Company takes on a policy and accepts payments of premium… it agrees to do so within certain bounds… to expect the insurer to pay compensation to a third party, which is clearly outside the bounds of the said agreement would be unfair.”
Concluding its analysis, the Supreme Court found the High Court’s order to be a just balance. “Balancing the need for payment of compensation to the victim vis-à-vis the interests of the insurer, the order of the High Court applying the pay and recover principle, in our considered view, is entirely justified and requires no interference,” the bench ruled.
The Supreme Court dismissed the appeals, thereby upholding the High Court’s judgment in its entirety.
