D.Y. Chandrachud, J.
1. The question which arises before the Court in this First Appeal lies within a narrow compass. The Second to Fourth Respondents are the claimants before the Motor Accident Claims Tribunal whose claim has been allowed in the amount of Rs. 1 lac together with interest at the rate of 12% per annum. The accident in question took place on 25th November, 1981 at about 9.30 pm when the deceased was pulling a handcart from the West to East direction on Mesant Road, Sewri, Mumbai. The offending vehicle which was being driven by the First Respondent came from behind and overran the handcart along with the deceased. The deceased was admitted to hospital at 9.35 pm and had received a number of injuries including a head injury, injuries in the chest and a bronchial tear. He expired on 16th December 1981 at 4.50 pm. The motor vehicle in question bore registration No. MTT 3227.
2. The defence of the insurance company which is the Appellant before the Court is that there was no valid contract of insurance. The facts on the basis of which this defence has been set up are admitted and are thus:
The policy of insurance was issued on 14th October, 1981 till 15th October, 1982. A payment of Rs.2,055/- on account of the premium was sought to be made to the insurance company in the form of a cheque bearing No.10075 dated 16th October, 1981 drawn on the Vaibhav Co-operative Bank Ltd., Mulund Branch, Mumbai. The cheque was dishonoured and an endorsement was made by the insurance company on 19th November, 1981 that the policy stood cancelled. The accident took place on 25th Novewmber, 1981. The defence, therefore, was that the accident had taken place after the insurance company had purported to cancel the policy on 19th November, 1981 on account of the dishonour of the cheque for premium and that consequently, the insurance company was not liable. The Tribunal answered this question against the insurance company, which is, therefore, in appeal.
3. Since the accident in the present case took place before the provisions of the Motor Vehicles Act, 1988 were enforced, the Court would have to have regard to the relevant provisions of the earlier Act if 1939j. Section 94(1) of the 1939 Act provided that 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 in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of Chapter 8. The corresponding provision in the Act of 1988 is Section 146. Section 96(1) of the Act of 1939 which corresponds to Section 149(1) of the Act of 1988 provided thus:
'149. Duty of insurers to satisfy judgments and awards against person insured in respect of third party risks - (1) If, after a certificate of insurance has been issued under Sub-section (3) of 147 in favour of the person by whom a policy has been effected, judgment or award in respect of any such liability as is required to be covered by a policy under Clause (b) of Sub-section (1) of Section 147 (being a liability covered by the terms of the policy) [or under the provisions of Section 163A] is obtained against any person insured by the policy, then, notwithstanding that the insurer may be entitled to avoid or cancel or may have avoided or cancelled the policy, the insurer shall, subject to the provisions of this section, pay to the person entitled to the benefit of the decree any sum not exceeding the sum assured payable thereunder, as if he were the judgment debtor, in respect of costs and any sum payable in respect of interest on that sum by virtue of any enactment relating to interest on judgments.'
Clause (a) of Sub-section 2 was in the following terms:
'(2) No sum shall be payable by an insurer under Sub-section (1) in respect of any judgment or award unless, before the commencement of the proceedings in which the judgment on award is given the insurer had notice through the Court or, as the case may be, the Claims Tribunal of the bringing of the proceedings, or in respect of such judgment or award so long as execution is stayed thereon pending an appeal; and an insurer to whim notice of the bringing of any such proceedings is so given shall be entitled to be made a party thereto and to defend the action on any of the following grounds, namely:-
(a) that there has been a breach of a specified condition of the policy, being one of the following conditions, namely:-
(i)a condition excluding the use of the vehicle-
(a) for hire or reward, where the vehicle is on the date of the contract of insurance a vehicle not covered by a permit to ply for hire or reward, or
(b) for organized racing and speed testing, or
(c) for a purpose not allowed by the permit under which the vehicle is used, where the vehicle is a transport vehicle, or
(d) without side-car being attached where the vehicle is a motor cycle; or
(ii) a condition excluding driving by a named person or persons or by any person who is not duly licensed, or by any person who has been disqualified for holding or obtaining a driving licence during the period of disqualification; or
(iii) a condition excluding liability for injury caused or contributed to by conditions or war, civil was, riot or civil commotion: or
Section 105 of 1939 Act was as follows :
'105. Whenever a policy of insurance issued under the provisions of this Chapter is cancelled or suspended by the insurer who has issued the policy, the insurer shall within seven days notify such cancellation or suspension to the registering authority in whose records the registration of the vehicle covered by the policy of insurance is recorded or to such other authority as State Government may prescribe.'
4. These provisions have been construed in several judgments of the Supreme Court and it would be instructive for the purpose of the present case to refer to two of those judgments. The first judgment in Oriental Insurance Company Limited V. Inderjit Kaur : (1998)1SCC371 is a judgment of three Learned Judges. In that case, a policy of insurance was issued on 30th November, 1989 and premium was paid by cheque. The cheque having been dishonoured, a letter was addressed by the insurance company to the insured on 23rd January, 1990 stating that the insurance company was not at risk since the cheque had not been encashed. The premium was paid in cash on 2nd May, 1991, but in the meantime, an accident took place on 9th April, 1990 in collision with a truck whose driver expired. The Motor Accident Claims Tribunal rejected the contention of the insurer that it was not liable in view of the provisions of Section 64VB of the Insurance Act, 1938. The Supreme Court while upholding the judgment of the Tribunal held that despite the bar that was created by Section 64VB of the Insurance Act, the Appellant which was an authorized insurer had issued a policy of insurance to cover the bus without receiving premium. By and as a result of Sections 147(5) and 149(1) of the Act of 1988, the insurer was held to be liable to indemnify a third party in respect of liability which that policy covered and to satisfy the award of compensation in respect thereof notwithstanding its entitlement to avoid or cancel the policy for the reason that the cheque issued in respect of the premium had not been honored. The Supreme Court held that the policy was a representation upon which third parties were entitled to act and the insurer was not absolved of its obligation to third parties merely because it did not receive the premium. The remedies of the insurer, it was held, lay against the insured. The decision of the Bench of three Learned Judges is also important for the purpose of the present case, because it specifically overrules the observations in an earlier Bench of two Learned Judges in United India Insurance Company Limited v. Ayeb Mohammed 1991 ACJ 650. Though learned counsel appearing on behalf of the Appellant had sought to rely upon the observations in the decision of the two learned Judges in Ayeb Mohammed's case (supra), they have not fairly been pressed in view of the subsequent judgment of three Learned Judges.
5. The second judgment to which a reference would have to be made is the judgment of two leaned Judges in New India Assurance Company Limited v. Rula : [2000]2SCR148 . The Supreme Court there held that the manifest object of Chapter XI of the Motor Vehicles Act 1988 is to ensure that a third party who suffers injuries due to the use of the motor vehicle may be able to get damages from the owner and the recoverability of those damages should not depend upon the financial condition or solvency of the driver of the vehicle who caused the injuries. Chapter XI, it was held, contemplates a third party who is not a signatory or a party to the contract of insurance, but is, nevertheless, protected by such contract. The third party, it was held, is not concerned with and does not come into the picture in relation to the payment of premium. Whether the premium is paid or not is not the concerned of the third party. The third party is concerned with the fact that there was a policy issued in respect of the vehicle involved in the accident and it is on the basis of this policy that the claim can be maintained against the insurer. The Supreme Court followed the earlier decision in Inderjit Kaur's case (Supra) and held that the subsequent cancellation of the insurance policy on the ground that the cheque through which premium was paid was dishonoured, would not affect the rights of a third party which had accrued on the issuance of the policy on the date on which the accident took place. If on the date of the accident, there was a policy of insurance in respect of the vehicle in question, the third party would have a claim against the insurance company and the owner of the vehicle would have to be indemnified in respect of the claim of that party. The subsequent cancellation of the insurance policy on the ground of non payment of premium would not affect the rights which have already accrued in favour of the third party.
6. In the present case, there is no doubt, a factual distinction which must be noted. However, to my mind, that distinction would not make any difference to the ultimate result. The factual distinction in the present case is that the accident took place on 25th November, 1981 after the insurance company had purported to endorse a cancellation of the insurance policy on 19th November, 1991 on the ground of the dishonour of the cheque. This to my mind would not make any difference to the position as it obtained atleast under the Act of 1939. Section 105 of the Act of 1939 enunciated that where a policy of insurance is cancelled, the insurer shall within seven days notify such cancellation or suspension to the registering authority in whose records the registration of the vehicle covered by the policy of insurance is recorded. The object of this provision is obvious. Section 94 of the Act contained a specific prohibition on the use of a motor vehicle unless there is in force a policy of insurance complying with the provisions of the chapter. The provisions of Section 96(1) which correspond to the provisions of Section 149(1) of the Motor Vehicles Act, 1988 have already been noted. Sub-section 2 of Section 96 of the Act of 1939 enabled the insurer to defend the action against him on certain specified grounds. Clause (a) thereof was that the policy was cancelled by mutual consent or by virtue of any provision contained therein before the accident giving rise to any liability or that either before or not later than 14 days after the happening of the accident the insurer has commenced proceedings for cancellation of the certificate after compliance with the provisions of Section 105. The requirement that the insurer must notify the registering authority under Section 105 was, therefore, tied up with the defence which was available to the insurer under Section 96(2)(a) that he had either before or within 14 days of the accident, commenced proceedings for the cancellation of the contract of insurance after notice as contemplated in Section 105. In the present case, the admitted position is that neither was any notice given to the registering authority under Section 105 nor were any proceedings for cancellation after such notice adopted. That being the position, the liability of the insurer cannot stand excluded. The circumstances and particularly having regard to the law laid down by the Supreme Court, I am of the view that the First Appeal has to be rejected, since the only ground which has been raised on behalf of the insurer in these proceedings has not been found to be tenable. The First Appeal is accordingly dismissed with costs.