Supreme Court Applies ‘Pay and Recover’ Doctrine—Insurer Must First Satisfy MACT Award Despite Policy Breach

Case Name: Akula Narayana v. The Oriental Insurance Company Ltd. & Anr.
Citation: Civil Appeal No. 013509 of 2025 (Arising out of SLP (C) No. 8434/2023); 2025 INSC 1301
Date of Judgment/Order: 10 November 2025
Bench: Hon’ble Mr. Justice Sanjay Karol & Hon’ble Mr. Justice Manoj Misra

Held:The Supreme Court held that even if the insured vehicle violated policy terms—including carrying excess passengers and the deceased being a gratuitous passenger—the insurer cannot be fully discharged from liability. Reaffirming the settled doctrine in Swaran Singh, Shamanna, and Rama Bai, the Court ruled that the insurer must first satisfy the compensation awarded by the Motor Accidents Tribunal and may thereafter recover the amount from the vehicle owner. The Court held that the High Court erred in completely absolving the insurer, despite the existence of an undisputed insurance contract and the insurer’s admission that additional premium had been collected for driver, conductor, and cleaner.

Summary: The case involved the death of a passenger travelling in a five-seater vehicle that was allegedly carrying nine persons. The Motor Accidents Tribunal held both owner and insurer jointly and severally liable, relying on the insurer’s own witness, who admitted that additional premium was collected to cover the risk of a driver, conductor, and cleaner. The insurer appealed, and the High Court set aside its liability on the grounds that the deceased was a gratuitous passenger and that overloading constituted a clear breach of policy conditions. Before the Supreme Court, the claimant argued that additional premium extended coverage and, at minimum, the insurer must be directed to satisfy the award and recover from the owner. The Court found that while the policy did not cover passengers beyond driver, conductor, and cleaner, the consistent line of decisions—Swaran Singh, Shamanna, and the recent Rama Bai—established that even when breach of policy conditions occurs, the insurer cannot be fully exonerated if the contract of insurance is not in dispute. Instead, the insurer’s remedy lies in recovery proceedings against the insured.

Decision: The Supreme Court allowed the appeal and restored the Tribunal’s direction by holding that the insurer must satisfy the award in favour of the claimant and thereafter recover the paid amount from the owner of the vehicle. The Court concluded that the High Court erred in completely absolving the insurer despite the admitted existence of a valid insurance policy and the consistent application of the “pay and recover” doctrine in such cases. All pending applications were disposed of, and the appeal was allowed to the stated extent.