Insurer liable for Nepal bus crash where valid permit existed, holds Supreme Court

A bench of Justices Sanjay Karol and Nongmeikapam Kotiswar Singh held Oriental Insurance liable for a fatal Nepal accident because the policy’s use clause imposed no geographical limit.

The Supreme Court has held that an insurer cannot escape liability for a motor accident that occurred in Nepal where the offending vehicle carried a valid permit and the insurance policy’s use clause imposed no geographical restriction. In a judgment dated 20 July 2026 reported as 2026 INSC 722, a division bench of Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh dismissed the appeal of The Oriental Insurance Co. Ltd.

The dispute arose from an accident involving a Durg-registered bus bearing No. CG-07/LP-0344, which was travelling from Durg to destinations in Nepal on a religious tour when it collided with a hill. Three persons, including the driver Riaz Khan and Harish Yadav, died. The Court found the policy covered vehicles used under a permit and that a special permit authorising the Durg–Nepal route brought the vehicle within cover, regardless of where it plied.

How the dispute reached the Court

The family of deceased Harish Yadav — his wife, children and mother — sought compensation of Rs.48,99,776 before the IVth Additional Motor Accident Claims Tribunal, Durg, in Claim Case No.1886 of 2011. By award dated 30 March 2015, the Tribunal held Rs.32,67,000 payable to the claimants, directing the owner of the vehicle to pay with 6% interest from 22 October 2011.

On appeal by the owner, the High Court of Chhattisgarh at Bilaspur, by judgment dated 4 February 2025 in MAC No.1292 of 2015, set aside the Tribunal’s allocation and fastened liability on the insurer instead of the owner. It relied on the Punjab and Haryana High Court decision in Anil Kumar v. Roop Kumar Sharma. The insurer carried the question of liability to the Supreme Court.

The bench proceeded on undisputed facts: the bus was registered in India; the owner held a special permit dated 23 July 2010 issued under Section 88(8) of the Motor Vehicles Act 1988 authorising travel to Nepal; the driver held a valid Indian licence; and a policy dated 16 May 2010 had been issued by the appellant. At the India–Nepal border, documents were verified and the Bhansar Pragna Patra and Indian Tourist Passenger Checking Card were issued.

The two clauses at the heart of the case

The Court framed two issues: whether an accident outside India was covered absent an additional premium under General Regulation 4 of the India Motor Tariff 2002; and whether the driver’s licence authorised him to drive in Nepal.

Reading the policy as a whole, the Court noted the insurer relied on the “Geographical Area: India” clause while ignoring the “Limitations as to Use” clause, which covered use under a permit within the meaning of the Act. Citing National Insurance Co. Ltd. v. Chief Electoral Officer and Export Credit Guarantee Corpn. of India Ltd. v. Garg Sons International, the Court reiterated that an insurance contract must be read as a whole and its terms harmonised.

The word “permit” under Section 2(31) covers a permit issued by a State or Regional Transport Authority authorising use of a vehicle as a transport vehicle. The special permit here was so issued and authorised the Durg–Nepal route, valid from 26 July 2010 to 15 August 2010. The Court held the use clause was “cast in general and unqualified terms” and imposed no geographical limitation.

The Court clarified that the “Geographical Area” clause was not thereby rendered redundant. It would still apply where a vehicle operated without a permit extending to foreign territory. Because a permit here specifically authorised travel to Nepal, the use clause by its own terms provided coverage. The insurer, having unilaterally drafted the policy, should have expressly excluded coverage outside India even with a permit. The Court applied the rule of contra proferentem, citing United India Insurance Co. Ltd. v. Pushpalaya Printers and Sangrur Sales Corpn. v. United India Insurance Co. Ltd., holding that any ambiguity must be read in favour of the insured and consistent with the beneficial purpose of the Motor Vehicles Act, referencing Syed Mehaboob v. New India Assurance Co. Ltd.

Why the additional-premium argument failed

The insurer contended that General Regulation 4 of the India Motor Tariff required a flat additional premium — Rs.500 per vehicle for a package policy — to extend coverage to Nepal, and that non-payment confined the policy to India. The Court noted the India Motor Tariff, including GR.4 and the IMT-1 endorsement, was a regulatory instrument issued by the Tariff Advisory Committee under the now-repealed Part II-B of the Insurance Act, 1938.

Turning to Section 147(5) of the Act, a non-obstante provision, the Court held it imposes liability on the insurer to indemnify persons specified in the policy notwithstanding anything in any other law. Relying on Mohd. Abdul Samad v. State of Telangana and A.G. Varadarajulu v. State of T.N., the Court held the non-obstante clause overrode the regulations. Non-payment of the additional premium would not vitiate the permit or other documents.

On extra-territorial reach, the Court referred to Article 245(2) of the Constitution and to Sections 139 and 149 of the Act, which contemplate vehicles taken outside India and the enforcement of foreign judgments against insurers. The statute, it held, applies whether the accident occurred in India or in Nepal.

The driving licence and the India-Nepal Treaty

The insurer argued the driver Riaz lacked a licence authorising him to drive in Nepal. The Court noted that Section 3 requires an effective licence, and that both courts below concurrently recorded Riaz held a valid licence on the date of the incident. The Bhansar Pragna Patra and Indian Tourist Passenger Checking Card recorded his name and licence number, showing Nepal authorities had verified the licence without objection.

The Court pointed to Article 7 of the Treaty of Peace and Friendship between India and Nepal, signed on 31 July 1950, which grants nationals of one country the same privileges as the other in matters including movement. The insurer had led no evidence that the verified licence was invalid in Nepal.

Observations on drafting and directions to IRDAI

Recording that the dispute related to 2010, the Court noted two later developments: IRDAI, by notification dated 20 March 2024, de-notified the India Motor Tariff with effect from 1 April 2024; and the Inter-Country Transport Vehicles Rules, 2021 now provide a framework for Indian vehicles to travel abroad under inter-country permits, though without expressly addressing extension of a domestic policy.

Finding no clear statute, precedent or regulatory clarification governing cross-border policy extension, the Court traced the root cause to ambiguous standard-form contracts drafted by insurers. It issued suggestions: policies must state clearly any extra-territorial cover; exclusions of cross-border coverage must be explicit with notice to the insured of the need for a separate endorsement; and IRDAI was advised to consider a master circular standardising cross-border coverage clauses.

The Court also expressed concern at the quality of Tribunal orders, observing that reasoning must correlate submissions and evidence with the result, which would reduce delay and appeals.

Order

The appeal was dismissed. The amount determined by the Tribunal with stipulated interest was held payable by the insurer to the claimants. If not already paid, it is to be deposited within four weeks from pronouncement and remitted directly to the claimants’ bank account; if already deposited, released with accrued interest. Pending applications were disposed of. A copy of the order was directed to be communicated to IRDAI for action on the suggestions in paragraph 28.