Permit Is Not a Formality, It’s a Legal Necessity: Madhya Pradesh High Court Directs Insurer to ‘Pay and Recover’ for Accident Caused by Vehicle Plying Outside Authorized States

“Violation of Route Permit Is a Clear Breach of Insurance Terms — Insurer Not Liable to Indemnify but Must First Compensate Victim and Recover from Owner,”  In a significant ruling clarifying the interplay between insurance liability and statutory compliance under the Motor Vehicles Act, the Madhya Pradesh High Court held that operating a vehicle outside its authorized permit area constitutes a breach of the insurance policy, relieving the insurer from liability — but still directed the insurance company to pay the awarded compensation and recover it from the vehicle owner and driver.

Justice Pavan Kumar Dwivedi partially allowed the appeal filed by the insurance company and set aside the liability imposed upon it by the Claims Tribunal. However, invoking the “pay and recover” doctrine, the Court directed that the insurer must first satisfy the award of ₹1,41,300/- granted to the injured third-party claimant and then proceed to recover the amount from the defaulting owner and driver, who had remained ex parte throughout the proceedings.

“Driving Without Route Permit in M.P. Was a Clear Breach of Section 66 – No Indemnity Available to Owner”

The central legal issue before the Court was whether the insurer could be held liable when the offending truck, insured by Oriental Insurance, was found to be plying without a valid route permit in the State of Madhya Pradesh, where the accident occurred.

The insurer produced critical documents — particularly Ex.D-7 and Ex.D-9, which showed that the national permit of the vehicle restricted its operation to Delhi, Uttar Pradesh, Rajasthan, and Haryana. There was no authorization for Madhya Pradesh, and even the claimant (who was working as a cleaner on the truck) admitted in cross-examination that the vehicle had no permit for the route.

Justice Dwivedi noted:

“Once this defence was raised by the insurance company and its burden was discharged by cross-examination of cleaner and deposition of its officer as also by exhibiting relevant documents... the onus had shifted on the owner of the vehicle to establish that it was having permit to ply the same in the State of M.P. However, the owner remained ex parte.”

The Court reiterated that Section 66 of the Motor Vehicles Act, 1988 mandates that no transport vehicle shall be used without a valid permit, and this requirement is not a mere procedural formality:

“It is thus clear that the requirement of Section 158 is not an empty requirement of carrying permit but... the vehicle must abide by the conditions of permit... so that it may be ensured that the vehicle is being plied in accordance with law.”

“Statutory Compliance Is Implicit in Policy Terms — Breach Disentitles Insured”

The insurance company had issued the policy under Ex.D-8, which clearly stated that it was subject to compliance with Chapters X and XI of the Motor Vehicles Act. Section 158, read with Section 66, requires that a valid permit must be in place for lawful operation. The Court held:

“It is not required that this condition should be mentioned in the policy itself when the policy says that the provisions of the Motor Vehicles Act, 1988 have to be complied with...”

Thus, the absence of permit for Madhya Pradesh amounted to a breach of policy conditions, and the insurer was rightly exonerated from indemnifying the insured.

“But Victim Cannot Be Left Uncompensated — Pay and Recover Principle to Apply”

Even while accepting the insurer’s legal position on breach of policy, the Court noted that the claimant was an innocent third party, grievously injured while working as a cleaner on the insured vehicle.

Relying on binding precedents including:

• Gohar Mohammed v. UPSRTC, (2023) 4 SCC 381
• K. Nagendra v. New India Insurance Co. Ltd., 2025 SCC OnLine SC 2297

the Court observed:

“To deny the victim compensation simply because the accident took place outside the bounds of the permit... would be offensive to the sense of justice...”

Quoting from K. Nagendra, the Court reaffirmed:

“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... is entirely justified.”

Accordingly, the High Court directed:

“The insurance company first pay the compensation as awarded by the Claims Tribunal to the claimant in full and then recover the same from the owner/driver of the vehicle.”

“Burden Was Shifted — Owner's Silence Cannot Bind Insurer”

Rejecting the argument that the insurer failed to produce the original permit or summon the RTO, the Court held that the insurance company had already discharged its burden by filing relevant documents and examining its officer. In fact, the insurance company’s application under Order XXVI Rule 4 CPC for summoning the RTO officer had been rejected by the Claims Tribunal, making it clear that the insurer had acted with due diligence.

Further, the owner and driver of the vehicle had remained absent, both before the Tribunal and the High Court. The Court noted:

“The burden had clearly shifted to the owner to produce the permit — and his failure to contest the matter left no room for doubt.”

Liability Reassigned, But Justice Preserved

The High Court’s judgment strikes a balanced approach, reinforcing the statutory and contractual limitations of insurance coverage, while also ensuring that third-party victims do not suffer on account of breaches committed by vehicle owners.

Justice Pavan Kumar Dwivedi concluded:

“It is hereby held that the insurance company is not liable to pay compensation as awarded by the Claims Tribunal — it is the liability of the owner/driver. However, the insurer shall first pay the award and recover the same thereafter.”

Date of Decision: 3 February 2026