SC bench to decide on insurers' liability to pay claims

A larger bench of the Supreme Court will decide the issue of whether insurance companies can be compelled to pay the claim even if they

are under no liability to pay such amount? A bench comprising Justice Markandey Katju and Justice AK Ganguly said: “We are of the opinion if the insurance company proves that it has no liability to pay compensation to the claimants, the insurance company cannot be compelled to make payment and later on recover it from the owner of the vehicle.” No doubt, there are some decisions of the apex court which have taken the view that even if the insurance company has no liability, yet it must pay and later on recover it from the owner of the vehicle, the court said. The bench said, we have some reservations about the correctness of such decisions of this court (SC). If the insurance company has no liability to pay at all, then, in our opinion, it cannot be compelled by order of the court in exercise of its jurisdiction under Article 142 of the Constitution of India to pay the compensation amount and later on recover it from the owner of the vehicle. The court framed two issues to be decided by a larger bench of the apex court. One, if an insurance company can prove that it does not have any liability to pay any amount in law to the claimants under the Motor Vehicles Act or any other enactment, can the court yet compel it to pay the amount in question giving it liberty to later on recover the same from the owner of the vehicle? Two, can such a direction be given under Article 142 of the Constitution (discretionary power of the apex court) and what is the scope of Article 142? Does Article 142 permit the court to create a liability where there is none?. The court passed the order on the plea of National Insurance Co. It said there was no valid insurance coverage on the date of the accident i.e. 30th November, 2003. The cheque towards premium for renewal of the policy was issued on November 29, 2003, but it was dishonoured. Hence, the contention of the insurance company was that it has no liability to pay any compensation amount to the claimants since there was no insurance coverage on the date of the accident. Despite this, the AP high court had directed the insurance company to pay the compensation amount to the claimants with liberty to recover the same from the owner of the vehicle.