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by sayum
17 February 2026 8:32 AM
“Once it is proved that the driver was not holding a valid licence, the Insurance Company must first pay the claimants, but has a legal right to recover the amount from the owner” – In a notable reaffirmation of the well-settled ‘pay and recover’ principle in motor accident compensation cases, the Punjab and Haryana High Court held that when the driver of the offending vehicle was not holding a valid driving licence at the time of the accident, the Insurance Company must first compensate the victims, but shall be entitled to recover the amount from the vehicle owner and driver.
The ruling came in FAO wherein the Insurance Company challenged the award passed by the Motor Accident Claims Tribunal, Gurdaspur, which imposed liability without granting any recovery rights, even though the Tribunal had itself found that the driver was not holding a valid driving licence.
“Tribunal’s Refusal to Grant Recovery Rights Is an Error Apparent on the Face of Record”
Justice Virinder Aggarwal, presiding over the appeal, noted that while the MACT had rightly found the driver guilty of negligent driving and lacking a valid licence, it wrongly fastened absolute liability on the insurer without reserving its recovery rights.
“The omission of the learned Tribunal to grant such rights, despite recording a clear finding on absence of licence, amounts to an error apparent on the face of the record.”
The Court clarified that such an approach contravenes the settled position of law, as laid down by the Supreme Court.
“Victims Must Be Paid, But Insurer Has Right to Recover From Owner When Policy Conditions Are Breached”
The Court invoked the settled position of law in cases such as:
New India Assurance Co. Ltd. v. Kamla Devi SC
National Insurance Co. Ltd. v. Swaran Singh SC
Shamanna v. Oriental Insurance Co. Ltd. SC
These precedents mandate that:
“Where the insurer establishes a fundamental breach of policy conditions, especially relating to absence of a valid and effective driving licence, it cannot be asked to shoulder permanent liability but must be allowed to recover the amount after satisfying the award.”
In this case, the driver Jasbir Singh’s licence was found to be fake, and evidence from the Licensing Authority, Jhansi, confirmed that the licence was not issued by them.
“Protecting Victims While Ensuring Accountability of Vehicle Owners”
The Court upheld the compensation awarded to the claimants – Rs. 2,88,000 with 9% interest – for the death of Gurwinder Singh, a 21-year-old, who had died on the spot in a collision between a scooter and a rashly driven Tata 407 truck.
However, the Court clarified that the Insurance Company cannot be held absolutely liable in cases of established violation of policy terms:
“The principle of ‘pay and recover’ balances the rights of third-party victims and the obligations of insured vehicle owners. Innocent victims cannot be left remediless due to inter se breaches between the insurer and the insured.”
Insurer’s Right to Recover Recognized, Appeal Allowed in Part
Allowing the appeal partially, the Court passed the following operative order:
“The award of the learned Tribunal dated 19.07.2001 is upheld insofar as it relates to the entitlement of the claimants to compensation. However, it is directed that the appellant-Insurance Company, after satisfying the award amount in favour of the claimants, shall be entitled to recover the same from respondent no.5 and 6, i.e., the driver and owner of the offending vehicle, in accordance with law.”
Tribunal Must Balance Victims’ Rights and Policy Defences
This judgment reinforces a fundamental tenet of Indian motor accident law: compensation to victims takes priority, but insurance companies are not helpless when vehicle owners commit policy breaches. The “pay and recover” doctrine ensures that justice is delivered both to the victims and the insurer, who retains the right to recover the amount from those who violated the terms of insurance.
Date of Decision : 23 September 2025
