Motor insurance liability to third parties survives fake licences unless the insured's breach is proved; award must be satisfied first.

Under the compulsory motor vehicle insurance scheme, an insurer cannot avoid liability to an innocent third-party claimant merely because the driver's licence is fake or the driver was not duly licensed; the statutory defence of breach is confined to breach attributable to the insured, and the insurer must prove wilful breach or knowledge on the insured's part. The scheme also requires the insurer to satisfy the award first, while any recovery from the insured is only available within the limits of the statutory framework. The object is to ensure real compensation to accident victims and prevent third-party awards from becoming unenforceable.

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Issues: (i) Whether an insurer can avoid liability to a third party on the ground that the driver's licence was fake or that the driver was not duly licensed; (ii) whether the insurer must first satisfy the award and can thereafter recover from the insured only where a breach by the insured is established.

Issue (i): Whether an insurer can avoid liability to a third party on the ground that the driver's licence was fake or that the driver was not duly licensed.

Analysis: The governing scheme of compulsory motor vehicle insurance was construed in the light of the object of protecting victims of road accidents. The statutory defences available to the insurer are limited, and the expression "breach" in the exclusion clause was held to signify a breach attributable to the insured, not a mere defect or fraud in the licence discovered after the event. If the insured has engaged a driver who appears duly licensed and has done everything reasonably within his power, the insurer does not escape liability merely because the licence later turns out to be fake, unless the insurer establishes wilful breach or knowledge on the part of the insured. The earlier authorities on third-party claims under the motor vehicle insurance regime were reaffirmed.

Conclusion: The insurer cannot avoid liability to the innocent third party merely by proving that the driver's licence was fake; breach by the insured must be established.

Issue (ii): Whether the insurer must first satisfy the award and can thereafter recover from the insured only where a breach by the insured is established.

Analysis: The statutory provisions were read as requiring the insurer to pay the claimant once a judgment or award within the policy cover is obtained, even where the insurer may have grounds to avoid or cancel the policy, subject only to the limited statutory defences. The provision preserving the insurer's right to recover does not enlarge the grounds of avoidance; it preserves a post-payment remedy against the insured where the policy terms and statutory conditions permit recovery. The scheme was held to ensure real compensation to third parties and to prevent awards from becoming merely paper decrees.

Conclusion: The insurer must satisfy the award in favour of the third party and may seek recovery from the insured only in accordance with the statutory scheme.

Final Conclusion: The appeal failed. The insurer remained liable to pay the compensation to the claimants, with the further consequence that the amount directed by the Court was recoverable only in the manner permitted by law.

Ratio Decidendi: Under the motor vehicle insurance scheme, an insurer cannot avoid liability to a third-party claimant merely because the driver was not duly licensed or the licence was fake; avoidance is available only when a breach of the policy condition by the insured is proved, and the insurer's remedy, where available, is to satisfy the award first and then recover from the insured.

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