Driving Outside Permit Route Is A Fundamental Breach, But Victims Must Be Paid: Supreme Court Upholds ‘Pay and Recover’ In Fatal Road Accident

The Supreme Court of India has reaffirmed that “driving a vehicle outside its permitted route constitutes a fundamental breach of the insurance policy”, yet insurers must first compensate third-party victims and then recover the amount from the vehicle owner. This ruling came on 29 October 2025, in the case of K. Nagendra v. The New India Insurance Co. Ltd. & Ors., where the Court dismissed appeals against the Karnataka High Court’s judgment applying the 'pay and recover' doctrine in a motor accident claim.

The Bench comprising Justice Sanjay Karol and Justice Prashant Kumar Mishra concluded that while the vehicle's deviation from its permit route warranted recovery rights for the insurer, the right to compensation of the deceased’s dependents could not be denied, upholding a compensation amount of ₹31.84 lakhs as assessed by the High Court.

“To Deny Compensation Because the Accident Happened Outside the Permit Route Would Be Offensive to Justice”

Delivering a strong message on balancing contractual limitations with the protective objectives of the Motor Vehicles Act, the Court observed:

“To deny the victim/dependents of the victim compensation simply because the accident took place outside the bounds of the permit and, therefore, is outside the purview of the insurance policy, would be offensive to the sense of justice, for the accident itself is for no fault of his.”

However, the Court simultaneously reinforced the insurer's contractual boundaries, noting that:

“When an Insurance Company takes on a policy... it agrees to do so within certain bounds... To expect the insurer to pay compensation clearly outside the bounds of the said agreement would be unfair.”

The judgment is a reaffirmation of the principle that public interest and victim compensation take precedence, while contractual breaches by the insured cannot be overlooked.

Accident, Compensation, and Permit Violation

The case arose from a tragic road accident on 7 October 2014, in which Srinivasa alias Murthy, riding a motorcycle, was struck and killed by a bus operated by the appellant, K. Nagendra. The bus was found to have deviated from its permitted route, as it entered Channapatna City, despite holding a permit only for the Bengaluru-Mysuru route.

The dependents of the deceased filed a compensation claim, and the Motor Accident Claims Tribunal awarded them ₹18.86 lakhs, assessing the deceased’s notional income at ₹8,000 per month. Dissatisfied, they appealed to the Karnataka High Court, which reassessed the monthly income at ₹15,750, added 40% for future prospects, and applied the multiplier method. The Court awarded a total of ₹31.84 lakhs, including amounts for consortium, loss of estate, and funeral expenses.

At the same time, the Insurance Company challenged its liability, citing the bus’s deviation from the authorized route as a breach of policy.

“Deviation From Permit Is Not A Mere Technicality – It’s A Fundamental Breach”

The High Court, relying on Amrit Paul v. TATA AIG (2018) 7 SCC 558, held that lack of permit or route violation constitutes a fundamental infraction, and therefore, the insurer was entitled to recover the amount paid to the claimants from the vehicle owner.

The Supreme Court, while affirming this position, observed:

“Unquestionably, the terms of the permit have been deviated.”

“The purpose of an insurance policy in the present context is to shield the owner/operator from direct liability when such an unforeseen/unfortunate incident takes place... but within the four corners of the policy agreement.”

The Court clarified that the doctrine of 'pay and recover' strikes an equitable 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.”

Reiterating Settled Law: Supreme Court Cites Swaran Singh, Kamla, and Amrit Paul

The judgment extensively relied upon a line of earlier Supreme Court decisions that recognized and approved the ‘pay and recover’ doctrine:

In National Insurance Co. Ltd. v. Swaran Singh (2004) 3 SCC 297, a three-judge bench had already clarified that even if the insurer proves a policy violation, it may still be directed to pay third-party compensation and recover it later from the owner. The present bench observed:

“It is one thing to say that the insurance companies are entitled to raise a defence, but it is another to say that... the Tribunal has power to direct them to satisfy the decree at the first instance and then direct recovery of the same from the owner. These two matters stand apart.”

The Court also cited New India Assurance Co. v. Kamla (2001) 4 SCC 342, where it was held:

“The insurer is statutorily liable to pay compensation to third parties... shall be entitled to recover from the insured if there was any breach of policy condition.”

Further references included Parminder Singh v. New India Assurance (2019) 7 SCC 217, and S. Iyyapan v. United India Insurance (2013) 7 SCC 62, both of which affirmed insurer recovery rights in cases involving fake licenses or unauthorized vehicle use.

In the recent decision M/s Chatha Service Station v. Lalmati Devi (2025 SCC OnLine SC 756), the Court reiterated the principle where vehicles carrying unauthorized or hazardous goods violated the insurance policy.

Pay First, Recover Later

Concluding the matter, the Supreme Court held:

“The appeals are dismissed. The High Court’s direction that the Insurance Company must pay the compensation to the claimants and then recover the same from the owner is upheld.”

Victim Protection Remains Paramount, But Insurer Rights Preserved

This judgment reaffirms a settled position in motor accident compensation law: the liability to compensate third parties in road accidents remains primarily with the insurer, even in cases of permit or policy violations. However, to ensure that the insurer’s contractual rights are not diluted, courts have consistently allowed them to recover such amounts from the policyholder.

The Supreme Court has once again underscored that victims and their families cannot be denied compensation for procedural or statutory breaches by the vehicle owner, while also maintaining that such owners must ultimately be held accountable.

Date of Decision: 29 October 2025