MOTOR VEHICLE ACT, 1988 – 2

Where, in pursuance of an arrangement between India and any reciprocating country, any motor vehicle registered in the reciprocating country operates on any route or within any area common to the two countries and there is in force in relation to the use of the vehicle in the reciprocating country, a policy of insurance complying with the requirements of the law of insurance in force in the country, then, notwithstanding anything contained in section 147 but subject to any rules which may be made under section 164, such policy of insurance shall be effective throughout the route or area in respect of which, the arrangement has been made, as if the policy of the insurance had complied with the requirements of this chapter.

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If, after a certificate of insurance has been issued under sub section (3) of section 147 in favour of the person by whom a policy has been effected, judgment or award in respect of any such liability as is required to be covered by a policy under clause (b) of sub section (1) of section 147 (being a liability covered by the terms of the policy) or under the provisions of section 163 A is obtained against any person insured by the policy, then, notwithstanding that the insurer may be entitled to avoid or cancel or may have avoided or cancelled the policy, the insurer shall, subject to the provisions of this section, pay to the person entitled to the benefit of the decree any sum not exceeding the sum assured payable there under, as if he were the judgment debtor in respect of the liability, together with any amount payable in respect of the interest on that sum by virtue of any enactment relating to the interest on judgments.

No sum shall be payable by an insurer under sub section (1) in respect of any judgment or award unless, before the commencement of the proceedings in which the judgments or award is given the insurer had notice through the Court or, as the case may be, the Claims Tribunal of the bringing of the proceedings, or in respect of such judgment or award so long as execution is stayed thereon pending an appeal; and an insurer to whom the notice of the bringing of any such proceedings is so given shall be entitled to be made a party thereto and to defend the action on any of the following grounds, namely: -

a. That there has been a breach of a special condition of the policy, being one of the following conditions, namely: -

(i)                  A condition excluding the use of the vehicle-

a.  For hire or reward, where the vehicle is on the date of the contract of insurance a vehicle not covered by a permit to ply for hire or reward, or

b.  For organised racing and speed testing, or

c.   For a purpose not allowed by the permit under which the vehicle is used, where the vehicle is a transport vehicle, or

d.  Without the side car being attached where the vehicle is a motor cycle; or

(ii)                A condition excluding driving by a named person or persons or by any person who is not duly licensed, or a person who has been disqualified for holding or obtaining a driving license during the period of disqualification; or

(iii)               A condition excluding liability for injury caused or contributed to by conditions of war, civil war, riot or civil commotion; or      

b. That the policy is void on the grounds that it was obtained by the non disclosure of a material fact or by a representation of fact which was false in some material particular.

Where any such judgment as is referred to in sub section (1) is obtained from a Court in a reciprocating country and in the case of a foreign judgment is, by virtue of the provisions of section 13 of the Code Of Civil Procedure, 1908 (5 of 1908) conclusive as to any matter adjudicated upon by it, the insurer (being an insurer registered under the Insurance Act, 1938 (4 of 1938) and whether or not he is under the corresponding law of the reciprocating country) shall be liable to the person entitled to the benefit of the decree in the manner and the extent specified in sub section (1), as if the judgment were given by a court in India:

Provided that no sum shall be payable by the insurer in respect of any such judgment unless, before the commencement of the proceedings in which the judgment is given, the insurer had notice through the Court concerned of the bringing of the proceedings and the insurer to whom notice is so given is entitled under the corresponding law of the reciprocating country, to be made a party to the proceedings and to defend the action on grounds similar to those specified in sub section (2).

Where a certificate of insurance has been issued under sub section (3) of section 147  of the person by whom a policy has been affected, so much of the policy as purports to restrict the insurance of the persons insured thereby by reference to any conditions other than those in clause (b) sub section (2) shall, as respects such liabilities as are required to be covered by a policy under clause (b) of sub section (1) of section 147, be of no effect:

Provided that any sum paid by the insurer in or towards the discharge of any liability of any person which is covered by the policy by virtue only of this sub section shall be recoverable by the insurer from that person.

If the amount which an insurer becomes liable under this section to pay in respect of a liability incurred by a person insured by a policy exceeds the amount for which the insurer would apart from the provisions of this section be liable under the policy in respect of that liability, the insurer shall be entitled to recover the excess from that person.

In this section the expressions ‘material fact’ and ‘material particular’ means, respectively a fact or particular of such a nature as to influence the judgment of a prudent insurer in determining whether he will take the risk and, if so, at what premium and on what conditions, and the expression ‘liability covered by the terms of the policy’ means a liability which is covered by the policy or which would be so covered but for the fact that the insurer is entitled to avoid or cancel of has avoided or cancelled the policy.

No insurer to whom the notice referred to in sub section (2) or sub section (3) has been given shall be entitled to avoid his liability to any person entitled to the benefit of any such judgment as is referred to in sub section (1) or in such judgment as is referred to in sub section (3) otherwise than in the manner provided for in sub section (2) or in the corresponding law of the reciprocating country, as the case may be.

Explanation: - For the purposes of this section, ‘Claim Tribunal’ means a Claims Tribunal constituted under section 165 and ‘award’ means an award made by that tribunal under section 168.

Where under any contract of insurance affected in accordance with the provisions of this Chapter, a person is insured against the liabilities which he may incur to third parties, then-

a.  In the event of the person becoming insolvent or making a composition or arrangement with his creditors, or

b.  Where the insured person is a company, in the event of a winding up order being made or a resolution for a voluntary winding up being passed with respect the company or of a receiver or manager of the company’s business or undertaking being duly appointed, or of possession being taken by or on behalf of the holders of any debentures secured by a floating chare of any property comprised in or subject to the change,

If, either before or after that event, any such liability is incurred by the insured persons, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything to the contrary in any provision of law, be transferred to and vest in the third party to whom the liability was so incurred.

Where an order for the administration of the estate of a deceased debtor is made according to the law of insolvency, then, if any debt provable in insolvency is owing by the deceased in respect of a liability to a third party against which he was insured under a contract of insurance in accordance with the provisions of this Chapter, the deceased debtor’s rights against the insurer in respect of that liability shall, notwithstanding anything to the contrary in any provisions of law, be transferred to and vest in the person to whom the debt is owing.

Any condition in a policy issued for the purposes of this Chapter purporting either directly or indirectly to avoid the policy or to alter the rights of the parties there under upon the happening to the insured person of any of the events specified in clause (a) or clause (b) of sub section (1) or upon the making of an order for the administration of the estate of a deceased debtor according to the law of insolvency shall be of no effect.

Upon a transfer under sub section (1) or sub section(2), the insurer shall be under the same liability to the third party as he would have been to the insurer person, but-

a.  If the liability of the insurer to the insured person exceeds the liability of the insured person to the third party, nothing in this Chapter shall affect the rights of the insured person against the insurer in respect of the excess, and

b.  If the liability of the insurer to the insured person is less than the liability of the insured person to the third party nothing in this Chapter shall affect the rights of the third party against the insured person in respect of the balance.

No person against whom a claim is made in respect of any liability referred to in clause (b) of sub section (1) of section 147 shall on demand by or on behalf of the person making the claim refuse to state whether or not be was insured in respect of that liability by any policy issued under the provisions of this Chapter, or would have been so insured if the insurer had not avoided or cancelled the policy, nor shall he refuse, if he was or would have been so insured, to give such particulars with respect to that policy as were specified in the certificate of insurance issued in respect thereof.