Once Impleaded, Insurer Can Challenge Compensation On All Grounds: Supreme Court Restores Insurance Company’s Right to Contest Quantum in Motor Accident Case

"If insurer is a party-respondent, it can raise all defences — not limited to Section 149(2) of the Motor Vehicles Act", In a significant clarification of the legal rights of insurance companies in motor accident claims, the Supreme Court held that an insurer, once impleaded as a party-respondent in a claim petition, is entitled to contest the claim on all grounds — including the quantum of compensation — and is not restricted only to the limited defences under Section 149(2) of the Motor Vehicles Act, 1988.

The Bench comprising Justice Rajesh Bindal and Justice Vijay Bishnoi allowed the appeal filed by the insurer and set aside the judgment of the Bombay High Court (Goa Bench), which had refused to consider the insurance company’s objections to the compensation awarded by the Motor Accident Claims Tribunal. The case has been remitted to the High Court for fresh consideration on the issue of quantum, with a direction to dispose of the matter expeditiously.

"Rejection of Section 170 Application Cannot Bar Insurer’s Right When Already a Party-Respondent"

Introduction: Supreme Court Upholds Insurer's Right to Full Defence When Impleaded as Party

The ruling arose out of a tragic accident involving a vehicle insured by National Insurance Company Ltd., in which one Santana De Melo lost his life. His minor son, Master Frewin Seby De Melo, filed a claim petition seeking compensation. The Motor Accident Claims Tribunal awarded ₹1.89 crore based on the assertion that the deceased was a seaman employed on a foreign cruise liner, earning $3,000 per month.

While the claimant was satisfied with the award, the insurer challenged the quantum of compensation before the High Court. It argued that the income of the deceased was not adequately proven and that the claim was vitiated by collusion, as the vehicle owner was the claimant’s own mother, and the driver a family friend.

However, the High Court dismissed the insurer's appeal, stating that since the Tribunal had rejected its application under Section 170 of the Motor Vehicles Act, it could not challenge the award on grounds beyond Section 149(2).

The Supreme Court strongly disagreed with this view.

"Shila Datta is the Binding Law — Insurer Can Challenge All Grounds When Made a Party to Claim Petition"

Legal Issues: Can an Insurer Impleaded as a Respondent Challenge Quantum Without Section 170 Permission?

The primary legal issue before the Court was whether rejection of an insurer’s application under Section 170 of the Motor Vehicles Act restricts it from challenging the compensation on all grounds, including quantum and collusion, when it is already a party-respondent to the claim petition.

Referring to the authoritative three-Judge Bench decision in United India Insurance Co. Ltd. v. Shila Datta (2011) 10 SCC 509, the Court reaffirmed that:

“If the insurer is already a respondent (having been impleaded as a party-respondent), it need not seek the permission of the Tribunal under Section 170 of the Act to raise grounds other than those mentioned in Section 149(2) of the Act.”

The Bench made it unequivocally clear that once the insurance company is impleaded as a party, it acquires a full right of defence as any other respondent would have.

“There cannot be two opinions that the Insurance Company when impleaded as a respondent in the claim petition has the right to contest the claim on all available grounds, without any restriction to grounds available under Section 149(2) of the 1988 Act,” the Court said.

"Tribunal Committed an Apparent Error in Rejecting Insurer’s Right to Contest on Merits"

The Supreme Court took strong exception to the Motor Accident Claims Tribunal's decision to dismiss the insurer’s application under Section 170 without properly considering its contentions. It observed that such rejection does not take away the insurer’s substantive rights, especially when it is already a respondent in the proceedings.

“Any rejection of the application can always be impugned with the final order. The error was perpetuated by the High Court by not allowing the appellant/Company to address the court on the issue of quantum of compensation,” the judgment noted.

The Court accepted the argument of the insurer that serious questions about the actual income of the deceased and possible collusion between the claimants and the vehicle owner had not been properly examined. The High Court had erred by refusing to entertain the insurer’s contentions, solely because Section 170 permission had been denied.

“Remand Ordered With Liberty to Contest All Issues — Compensation Paid to Be Subject to Outcome”

Appeal Allowed, Matter Remitted for Fresh Hearing on Compensation

In light of the legal position and the binding precedent in Shila Datta, the Court allowed the insurer’s appeal and remitted the case to the Bombay High Court (Goa Bench) for fresh consideration of the quantum of compensation. It directed the High Court to give both sides full opportunity to be heard.

Taking note of the inordinate delay — the accident having occurred over 15 years ago — the Bench requested the High Court to expedite the appeal proceedings.

The Court also clarified that the compensation amount already released to the claimant shall remain subject to the final outcome of the appeal.

“There is an apparent error committed by the Tribunal in rejecting the application... The error was perpetuated by the High Court,” the Bench reiterated while allowing the appeal.

“Any contrary view of a smaller Bench has no precedential value”

Before parting with the case, the Court emphasized the binding nature of the law laid down in Shila Datta, a decision rendered by a three-Judge Bench. It stated:

“Any contrary view taken by a two-Judge Bench of this Court will not have any legal force as the judgment in Shila Datta’s case is of a bench consisting of three Hon’ble Judges.”

Date of Decision: January 5, 2026