Introduction

Case: K. Nagendra v. The New India Insurance Co. Ltd. & Ors.

Citation: 2025 INSC 1270; Civil Appeal Nos. of 2025 (arising out of SLP (C) Nos. 7139-7140 of 2023)

Court: Supreme Court of India (Civil Appellate Jurisdiction)

Bench: Sanjay Karol, J.; Prashant Kumar Mishra, J.

Date of Decision: 29 October 2025

This decision addresses a recurrent and practically significant question under the Motor Vehicles Act, 1988: whether an insurer remains liable, vis-à-vis third-party victims, when a transport vehicle causes an accident while operating outside the route authorised by its permit. Specifically, the Supreme Court considers whether a deviation from the prescribed permit route constitutes a policy/permit breach that affects the insurer’s liability, and if so, how the interests of third-party victims should be balanced against the contractual protections of the insurer.

The litigation arises out of a fatal motor accident on 7 October 2014, in which the deceased, riding a motorcycle, was struck by a bus (Reg. No. KA-52-9099). The dependents of the deceased sought compensation before the Motor Accident Claims Tribunal (MACT). On appeal, the High Court of Karnataka enhanced compensation and, accepting the insurer’s plea that the bus was operating in violation of its permit by entering Channapatna City, directed the insurer to pay the award to the claimants and then recover it from the vehicle owner (the “pay-and-recover” principle). In the Supreme Court, the vehicle owner (K. Nagendra) challenged this direction.

The Supreme Court has now reaffirmed and clarified the application of the pay-and-recover principle to cases of permit violations arising from route deviations, thereby ensuring that third-party victims are compensated promptly while preserving the insurer’s contractual defenses by granting them a right of recovery from the insured.

Summary of the Judgment

• Facts not in dispute: The offending bus did not have a permit to enter Channapatna City, where the accident occurred; this was a deviation from the terms of the route permit.
• High Court’s approach: Enhanced compensation under standard heads and applied the pay-and-recover principle: insurer to satisfy the award first and then recover from the owner.
• Supreme Court’s holding: Deviation from the prescribed route under a permit is a breach that affects the insurer’s contractual liability inter se the insured; however, third-party victims must not be denied compensation. The pay-and-recover principle is appropriate: the insurer must pay the claimants and may recover the amount from the owner.
• Disposition: Appeals dismissed; High Court’s application of pay-and-recover affirmed; no order as to costs.

“To deny the victim/dependents of the victim compensation simply because the accident took place outside the bounds of the permit … would be offensive to the sense of justice… Then, the Insurance Company most certainly ought to pay… [but] to expect the insurer to pay compensation… which is clearly outside the bounds of the said agreement would be unfair. Balancing… the pay and recover principle… is entirely justified.”

Detailed Analysis

A. Precedents Cited and Their Influence

• National Insurance Co. Ltd. v. Swaran Singh (2004) 3 SCC 297

  A three-Judge Bench held that even when the insurer establishes a statutory defence under Section 149(2) (e.g., breach of specified policy conditions), the tribunal/court may direct the insurer to satisfy the award first and then recover from the insured (Section 149(5) read with 149(1) and 149(7)). This foundational decision grounds the modern pay-and-recover doctrine, balancing statutory victim protection with insurer’s contractual defences.

  Influence here: The Court reiterates Swaran Singh’s principle that “these two matters stand apart”: establishing a defence does not automatically relieve the insurer of the statutory obligation to first pay third-party victims.

• New India Assurance Co. v. Kamla (2001) 4 SCC 342

  Clarified that the insurer and insured are bound by policy conditions inter se; upon breach (e.g., unlicensed driver), the insurer that pays third parties under statutory compulsion is entitled to recover from the insured.

  Influence here: Supports the Court’s contract-law rationale that while the insurer must protect third parties, it retains recovery rights from the insured upon proving breach.

• Parminder Singh v. New India Assurance Co. Ltd. (2019) 7 SCC 217

  Approved pay-and-recover where the driver lacked a valid licence. This extends Swaran Singh’s logic to particular fact matrices involving licence infractions.

  Influence here: Demonstrates the consistent use of pay-and-recover for breaches under Section 149(2), reinforcing that third-party claims are to be satisfied first.

• S. Iyyapan v. United India Insurance Co. Ltd. (2013) 7 SCC 62

  Applied pay-and-recover where there was a mismatch between the vehicle category driven and the licence endorsement (driver authorised for a different class).

  Influence here: Aligns with treating various licensing/usage deviations as breaches triggering pay-and-recover, not outright denial to third parties.

• Amrit Paul and Anr. v. TATA AIG General Insurance Co. (2018) 7 SCC 558

  Concerned the absence of any permit. The Court termed use of a vehicle without a permit a “fundamental statutory infraction” under Section 66, distinct from mere licence irregularities. It affirmed pay-and-recover: insurer pays third parties, then recovers from insured.

  Influence here: Crucial stepping stone. Although Amrit Paul involved no permit, the present case extends the logic to a permit route deviation. The Court reasons that operating outside the permit’s four corners undermines the contractual risk contemplated by insurer, warranting pay-and-recover.

• M/S CHATHA SERVICE STATION v. LALMATI DEVI & Ors., 2025 SCC OnLine SC 756

  Held that transporting hazardous goods contrary to legal requirements triggers pay-and-recover—insurer must compensate victims, but may recover from insured for the breach (Rule 9, Central Motor Vehicles Rules, 1989 aspect).

  Influence here: Broadens the pattern to improper carriage/usage violations, reinforcing that where the manner of use breaches statutory/policy conditions, pay-and-recover is the equitable and statutory mechanism.

• Shamanna v. Oriental Insurance Co. Ltd. (2018) 9 SCC 650

  Followed Swaran Singh, applying pay-and-recover in a licence breach situation.

B. Legal Reasoning

1. The statutory-contractual matrix:
   • Section 66, Motor Vehicles Act, 1988: Necessitates a permit for transport vehicles, with delineated routes/conditions. Operating without a permit or contrary to its terms is a statutory breach.
   • Section 149, Motor Vehicles Act, 1988: Imposes on the insurer a statutory duty to satisfy third-party awards (Section 149(1)), while also allowing specific defences for breaches of policy conditions (Section 149(2)). However, even where a defence is established, the court may direct the insurer to pay first and then recover from the insured (reading Sections 149(1), 149(5), and 149(7) together), per Swaran Singh.
2. From “no permit” to “route deviation”:

   The Court acknowledges that Amrit Paul dealt with the absence of any permit and termed it a fundamental infraction. The present case asks whether a deviation from a valid permit’s route likewise affects liability. The Court answers in the affirmative: operating in a city not authorised by the permit is a deviation from the permit’s terms and thus a breach relevant under Section 149(2). This brings the case within the ambit of the pay-and-recover doctrine.

3. Balancing justice to victims with contractual fairness to insurers:

   The Court foregrounds third-party victim protection: accident victims should not be denied compensation because of inter se breaches by the insured. Simultaneously, insurers are entitled to rely on the four corners of the insurance contract and the permit regime when underwriting risk. The equitable balance is struck by requiring the insurer to pay the award to victims first (to prevent injustice and delays), while preserving the insurer’s right to recover the payout from the vehicle owner whose breach occasioned liability beyond the policy’s contours.

4. Burden and proof posture:

   In Amrit Paul, the Court emphasised that exceptions under Section 66 must be pleaded and proved, and that the existence of a permit is a matter of documentary proof. Here, the route deviation was not disputed—the bus was not authorised to enter Channapatna City—satisfying the insurer’s plea of breach. That factual anchor triggered the pay-and-recover solution without further evidentiary controversy.

5. Scope and principle crystallised (Ratio):

   Where a transport vehicle causes an accident while operating outside the route authorised by its permit, the insurer must satisfy the third-party award and is entitled thereafter to recover the amount from the insured owner. Route deviation is a breach sufficient to invoke the pay-and-recover principle.

C. Quantum of Compensation: A Note

While the Supreme Court’s principal intervention concerned insurer liability, the High Court’s quantification bears mention:

• Monthly income reassessed: Rs. 15,750; plus 40% future prospects.
• Dependents: 4; thus 1/4th deduction towards personal expenses.
• Multiplier: 16; loss of dependency: Rs. 30,24,000.
• Conventional heads: Consortium and other non-pecuniary damages awarded: Rs. 40,000 (spousal consortium), Rs. 30,000 (parental consortium), Rs. 30,000 each (filial consortium to parents), plus Rs. 15,000 (loss of estate), and Rs. 15,000 (funeral expenses).
• Total: Rs. 31,84,000 with interest as determined below.

The Supreme Court did not disturb the High Court’s computation; the focus remained on liability allocation and the propriety of applying pay-and-recover for a route deviation breach.

D. Impact and Forward-Looking Implications

• Clarification of legal position: This judgment extends and clarifies that pay-and-recover is not limited to cases of absence of permit (Amrit Paul) or licence irregularities (Swaran Singh line), but also applies to route deviations constituting permit-condition breaches. It thus closes a doctrinal gap and aligns tribunals on treatment of such deviations.
• Protection of third-party victims: Claims will not be stalled or denied due to permit-route infractions. Insurers are to satisfy awards promptly; the burden of the breach is ultimately shifted back to the insured owner through recovery.
• Operational compliance for transporters: Owners/drivers must adhere strictly to route permits. Deviations now clearly expose them to reimbursement liability to insurers. Routine practices like entering non-permitted urban limits or taking detours outside the notified corridor may carry significant financial consequences if an accident occurs.
• Insurer underwriting and claims handling: Insurers may tighten underwriting for route-specific risks, reinforce policy terms mirroring permit conditions, and standardise subrogation/recovery processes. Claims teams should gather early evidence on permit scope, GPS routes, and any official route diversions.
• MACT practice and orders: Tribunals should, upon proof of permit breach by route deviation, frame awards with an explicit pay-and-recover direction in favour of the insurer. Execution modalities (security, attachment, recovery within the same proceedings) should be facilitated to avoid separate civil suits where permissible.
• Open questions: The Court did not delineate a “de minimis” threshold. Future cases may examine borderline scenarios: temporary traffic diversions, unavoidable detours, or emergency-driven deviations. Documentary proof of authorised diversions or official notifications could be relevant to rebut a breach.

Complex Concepts Simplified

• Permit and route deviation: A permit authorises a transport vehicle to ply on specified routes/areas. Entering locations not covered—like a city beyond the permit’s scope—is a route deviation and a breach of permit conditions.
• Pay-and-recover principle: Even if the insured violated a policy/permit condition, the insurer must first pay compensation to third-party victims. After paying, the insurer can recover that amount from the vehicle owner/insured who committed the breach.
• Section 66 (Motor Vehicles Act): Requires transport vehicles to have a valid permit and operate within its terms. Breaches (no permit or operating outside the permitted route) are statutory infractions.
• Section 149 (Motor Vehicles Act): Imposes a duty on insurers to satisfy third-party awards, while allowing them to raise limited statutory defences. Even when a defence is established, courts often direct pay-and-recover to protect third-party claimants.
• Consortium and conventional heads: Non-pecuniary damages such as spousal, parental, and filial consortium compensate for loss of companionship and affection; “loss of estate” and “funeral expenses” are standard fixed-sum heads.
• Multiplier method: A standard method to compute loss of dependency by multiplying annual loss of income (after deductions) by a multiplier linked to the age of the deceased.

Conclusion

The Supreme Court’s decision in K. Nagendra v. The New India Insurance Co. Ltd. cements an important clarification: deviations from a vehicle’s permit route constitute a breach that triggers the pay-and-recover mechanism. This ensures that third-party victims are compensated without delay, while recognising the insurer’s contractual right to be indemnified by the insured for liabilities arising outside the agreed risk envelope.

By harmonising Swaran Singh, Kamla, and Amrit Paul, and aligning with recent rulings like M/s Chatha Service Station, the Court fortifies a coherent doctrine across licence breaches, absence of permits, improper usage, and now, route deviations. The key takeaway for stakeholders is clear:

• Claimants: Compensation is secure notwithstanding permit-route irregularities.
• Insurers: Must pay first but retain a robust right to recover upon proving breach.
• Owners/Operators: Scrupulous adherence to permit routes is essential to avoid reimbursement liability.

As transport operations and enforcement technologies evolve (e.g., GPS tracking, dynamic diversions), future cases may refine the boundary between trivial and material route deviations. For now, the governing principle is unmistakable: route deviations are actionable permit breaches for which pay-and-recover will apply.

Key Case Details

• Accident: 7 October 2014; deceased riding a motorcycle; collision with bus KA-52-9099.
• MACT award (14 December 2016): Rs. 18,86,000 with 6% p.a. interest (notional income Rs. 8,000 per month).
• High Court (25 September 2019): Enhanced to Rs. 31,84,000; applied pay-and-recover due to route deviation (permit did not authorise entry into Channapatna City).
• Supreme Court (29 October 2025): Appeals dismissed; High Court affirmed; insurer to pay and recover from owner; no costs.