In a significant reaffirmation of the long-standing “pay and recover” doctrine, the Supreme Court of India in Akula Narayana v. The Oriental Insurance Company Ltd. & Anr. (2025 INSC 1301) once again underscored that insurers cannot completely evade liability toward victims of motor-vehicle accidents merely because of policy breaches by the vehicle owner. The Court directed the insurer to first satisfy the award passed by the Motor Accidents Tribunal (MACT) in favour of the claimant and only thereafter recover the amount from the owner of the offending vehicle.
This judgment, delivered on 10 November 2025 by a Bench of Justice Sanjay Karol and Justice Manoj Misra, reinforces the humanitarian foundation of Indian motor-accident compensation law, placing victim restitution above contractual technicalities.
Background of the Case
The appeal arose from a decision of the Telangana High Court at Hyderabad, which had absolved the insurer, Oriental Insurance Company, from liability to pay compensation to the claimant.
The facts were as follows:
- The appellant, Akula Narayan, had lost a relative in a road accident involving a five-seater vehicle that was allegedly carrying nine persons at the time of the mishap.
- The vehicle was insured with the respondent company.
- The Motor Accidents Tribunal, by its award dated 29 April 2021, had held both the owner and the insurer jointly and severally liable to pay compensation.
- This conclusion rested on the insurer’s own administrative manager’s admission during cross-examination that an additional premium had been collected for carrying a driver, conductor, and cleaner.
Relying on this testimony, the Tribunal reasoned that since the insurer had received additional premium, the deceased passenger qualified as a third party within the scope of the policy, entitling the claimant to compensation.
However, on appeal by the insurer, the High Court reversed the award, holding that:
- The policy covered only the driver, conductor, and cleaner, not any other passengers; and
- Carrying nine persons in a five-seater constituted a clear breach of policy terms, releasing the insurer from any obligation.
This left the claimant remediless, as recovering compensation from the vehicle owner proved practically impossible. The claimant thus approached the Supreme Court.
Issue Before the Supreme Court
The principal question before the Bench was:
“Whether, despite the breach of policy conditions, the insurer could be directed to pay the awarded compensation to the claimant and recover the same from the vehicle owner?”
This required revisiting the contours of the ‘pay and recover’ principle—developed through judicial interpretation to protect accident victims even when the insured had violated policy conditions.
Arguments Advanced
For the Appellant (Claimant)
Counsel for the claimant contended that:
- The insurer had collected an additional premium specifically to cover the risk of three persons travelling in the vehicle.
- Even assuming that the deceased was not among those expressly covered, the insurer should not escape liability altogether, since the contract of insurance subsisted and consideration had been paid.
- At the very least, the insurer should be directed to pay the compensation first and recover it from the owner, in line with the Supreme Court’s consistent jurisprudence in
National Insurance Co. Ltd. v. Swaran Singh (2004) 3 SCC 297, and
Shamanna v. Divisional Manager, Oriental Insurance Co. (2018) 9 SCC 650
Reliance was also placed on Mata Ram v. National Insurance Co. (2018) 18 SCC 289, where the Court had allowed recovery from the owner while ensuring immediate relief to the victim.
For the Respondent (Insurer)
The insurer, on the other hand, argued that:
- The policy in question was merely a statutory policy, covering only third-party risks;
- A gratuitous passenger other than the driver, conductor, or cleaner could not be treated as a third party; and
- The vehicle’s overloading with nine passengers was a fundamental breach, disqualifying the insurer from any liability.
Hence, the High Court’s decision to absolve the insurer entirely required no interference.
Supreme Court’s Observations
After hearing both sides, the Supreme Court undertook a detailed review of the legal evolution of the ‘pay and recover’ principle, reaffirming its continued applicability even in cases involving policy breaches.
1. Limited Scope of the Appeal
The Bench noted that no appeal had been filed by the insured (vehicle owner) against the High Court’s finding that he was not entitled to the benefit of insurance. Thus, the only question before the Court was whether the insurer should have been completely absolved or directed to pay first and recover later.
2. Consistent Jurisprudence
Justice Manoj Misra, writing for the Bench, emphasised that where the contract of insurance itself is undisputed, courts have repeatedly adopted a victim-centric approach. Even if there is a technical breach—such as unauthorised passengers or expired driving licences—the insurer is ordinarily directed to pay the compensation first and then recover it from the owner.
The Court cited the authoritative precedents in Swaran Singh and Shamanna, where this principle was crystallised, holding that the insurer’s obligation to third-party victims cannot be nullified merely due to the insured’s default.
3. Application of Precedent in Rama Bai v. Amit Minerals
The judgment further referenced the recent decision in Rama Bai v. Amit Minerals (2025 SCC OnLine SC 2067), where the Court reiterated that in the event of a breach, the insurer must still satisfy the award and subsequently recover the amount from the owner.
4. Balancing Contractual and Statutory Obligations
The Court reasoned that motor-accident compensation law serves a social-welfare function. The Motor Vehicles Act, 1988, as a welfare legislation, mandates insurance to ensure that victims or their dependents are not left uncompensated. The insurer’s contractual rights must therefore yield, to some extent, to the Act’s statutory purpose of victim protection.
5. Final Direction
Consequently, the Supreme Court allowed the appeal, directing that:
“The first respondent (insurer) shall satisfy the award, though it can recover the amount so paid from the insured (owner of the vehicle).”
The Court thus reinstated the Tribunal’s humanitarian balance—protecting the claimant’s right to speedy compensation without extinguishing the insurer’s contractual remedy.
Understanding the ‘Pay and Recover’ Principle
Origin and Evolution
The ‘pay and recover’ doctrine first gained firm footing in National Insurance Co. Ltd. v. Swaran Singh (2004). The Court held that even when the driver lacked a valid licence or the policy conditions were breached, the insurer must first pay the third-party claimant and then recover the amount from the insured.
This pragmatic approach sought to avoid endless litigation that delays compensation to victims. It reflected a welfare-oriented reading of Section 149(1) and (2) of the Motor Vehicles Act, which allows insurers to defend on limited grounds but does not absolve them of liability toward third parties.
Rationale
- Public Policy Considerations – The principle ensures prompt relief to victims of accidents, many of whom are from weaker sections of society.
- Judicial Pragmatism – Instead of forcing claimants to chase impecunious owners, courts direct insurers—who possess greater financial capacity—to satisfy awards.
- Equitable Balance – The insurer’s right of recovery preserves contractual sanctity, preventing unjust enrichment of defaulting owners.
Subsequent Clarifications
The doctrine has been reaffirmed in several judgments, including:
- Shamanna v. Oriental Insurance Co. (2018),
- Pappu v. Vinod Kumar Lamba (2018), and
- Parvathamma v. Dhanalakshmi (2018).
These decisions emphasise that while breach of policy terms may justify recovery, it cannot deny compensation to innocent victims.
Conclusion
The Supreme Court’s decision in Akula Narayana v. Oriental Insurance Co. Ltd. marks yet another milestone in India’s evolving compensation jurisprudence. By reaffirming the ‘pay and recover’ doctrine, the Court has ensured that justice remains accessible, immediate, and humane for accident victims.
This ruling not only strengthens public confidence in the legal system but also reiterates that technicalities cannot triumph over human suffering. It harmonises the insurer’s contractual rights with society’s moral obligation toward the injured and the bereaved.
Ultimately, the message from the Supreme Court is unequivocal:
“Insurers must first pay. Recovery can wait; justice cannot.”
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