Appendix ‘A’ – Front-page and Cover

LIABILITY OF INSURANCE COMPANY

UNDER THE MOTOR VEHICLES ACT

Submitted by
Venkatesh Kumar Singh
Roll Number: 38
M.B.A Risk & Insurance
Batch: 2021-2023

Banaras Hindu University, Varanasi.

In
July, 2023

Under the guidance of

Prof. Rakhi Gupta

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 Appendix ‘B’ – Certificate

CERTIFICATE

The project entitled “LIABILITY OF INSURANCE COMPANY UNDER THE MOTOR

VEHICLES ACT" submitted to Law School, Banaras Hindu University for Law of Torts,
as part of internal assessment is based on my original work carried out under the
guidance of Prof. M. C. Bijawat from January to April, 2016. The research work has
not been submitted elsewhere for award of any degree. The material borrowed from
other sources and incorporated in the thesis has been duly acknowledged. I
understand that I myself could be held responsible and accountable for plagiarism, if
any, detected later on.

Signature of the candidate

Date:13thJuly, 2023

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 Acknowledgement

I am using this opportunity to express my gratitude to everyone who supported me

throughout the course of this project. I am thankful for their aspiring guidance, invaluably
constructive criticism and friendly advice during the project work. I am sincerely grateful to
them for sharing their truthful and illuminating views on a number of issues related to the
project.

I express my warm thanks to Prof. Rakhi Gupta for her support and guidance at Banaras
Hindu University.

I would also like to thank my coordinator Prof. Rakhi Gupta and all the people who
provided me with the facilities being required and conductive conditions for my project.

Thank you,

Venkatesh Kumar Singh

MBA Risk & Insurance

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 INDEX

Sr. No TOPIC PG NO.

1 Prologue 5
2 What is Third Party Insurance? 6
3 Salient Features of Third Party 6
Insurance
4 Motor Vehicles Acts, 1939 and 1988 7
5 Historical Background of third Party 8
Insurance
6 Relevant Provisions of Motor 10
Vehicles Act, 1988
7 FINAL ACCOUNTS OF INSURANCE 15
COMPANIES
8 Conclusion 64
9 Bibliography 65

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Prologue

In India, under the provisions of the Motor Vehicles Act, 1988, it is mandatory that every
vehicle should have a valid Insurance to drive on the road. Any vehicle used for social,
domestic and pleasure purpose and for the insurer's business motor purpose should be
insured.

Insurance is a contract whereby one party, the insurer, undertakes in return for a
consideration, the premium , to pay the other, the insured or assured, a sum of money in the
event of the happening of a , or one of various ,specified uncertain events.

Insurance developed from the fourteenth century as a means of spreading huge risks
attendant on early maritime enterprises; life and fire insurance developed later. The main
classes of insurance are life and other personal insurance, marine insurance, accident or
property insurance and liability insurance when the sum becomes payable when legal
liability is incurred as for personal injuries or professional negligence to another.

Motor third-party insurance or third-party liability cover, which is sometimes also referred to
as the 'act only' cover, is a statutory requirement under the Motor Vehicles Act. It is referred
to as a 'third-party' cover since the beneficiary of the policy is someone other than the two
parties involved in the contract i.e. the insured and the insurance company. The policy does
not provide any benefit to the insured; however it covers the insured's legal liability for
death/disability of third party loss or damage to third party property.

This paper is an endeavour to explain the relevance of third party insurance? What is third
party insurance? Who is a third party? Why third party insurance is compulsory for all
vehicles under the Motor Vehicles Act, 1988? What are the salient features of third party

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insurance? These aspects of the third party insurance have been explained with the help of
various case laws.

What is Third Party Insurance?

There are two quite different kinds of insurance involved in the damages system. One is
Third Party liability insurance, which is just called liability insurance by insurance
companies and the other one is first party insurance.

A third party insurance policy is a policy under which the insurance company agrees to
indemnify the insured person, if he is sued or held legally liable for injuries or damage done
to a third party. The insured is one party, the insurance company is the second party, and the
person you (the insured) injure who claims damages against you is the third party.

Section 145(g) "third party" includes the Government. National Insurance Co. Ltd. v. Fakir
Chand[1], “third party” should include everyone (other than the contracting parties to the
insurance policy), be it a person traveling in another vehicle, one walking on the road or a
passenger in the vehicle itself which is the subject matter of insurance policy.

Salient Features of Third Party Insurance

Ø Third party insurance is compulsory for all motor vehicles. In G. Govindan v. New India
Assurance Co. Ltd.[2],Third party risks insurance is mandatory under the statute .This
provision cannot be overridden by any clause in the insurance policy.

Ø Third party insurance does not cover injuries to the insured himself but to the rest of the
world who is injured by the insured.
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Ø Beneficiary of third party insurance is the injured third party, the insured or the policy
holder is only nominally the beneficiary of the policy. In practice the money is always paid
direct by the insurance company to the third party (or his solicitor) and does not even pass
through the hands of the insured person.
Ø In third party policies the premiums do not vary with the value of what is being insured
because what is insured is the ‘legal liability’ and it is not possible to know in advance what
that liability will be.

Ø Third party insurance is almost entirely fault-based.(means you have to prove the fault of
the insured first and also that injury occurred from the fault of the insured to claim damages
from him)

Ø Third party insurance involves lawyers aid

Ø The third party insurance is unpopular with insurance companies as compared to first
party insurance, because they never know the maximum amounts they will have to pay
under third party policies.

Motor Vehicles Acts, 1939 and 1988

Motor Vehicles Act,1939 (4 of 1939) consolidates and amends the law relating to motor
vehicles. This has been amended several times to keep it up to date. The need was, however
felt that this Act should, now inter alia take into account also changes in the road transport
technology, pattern of passenger and freight movements, development of the road network in
the country and particularly the improved techniques in the motor vehicles management.

The Motor Vehicles Act,1988 which came into force on 1st July,1988 and which is divided
into XIV Chapters, 217 Sections and two schedules, makes it compulsory for every motor
vehicle to be insured. Chapters X,XI and XII of the 1988 Act deals with compensation
provisions. Sections 140 to 144 (Ch.X) deal with liability with out fault in certain cases.
Chapter XI (Ss. 145 to 164) deal with insurance of motor vehicles against third party risks.

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Historical Background of third Party Insurance

Chapter VIII of the 1939 Act and Chapter XI of the 1988 Act have been enacted on the
pattern of several English statutes which is evident from the report of ‘Motor Vehicles
Insurance Committee,1936-1937’In order to find out the real intention for enacting Ss.96 of
the 1939 Act which corresponds to Ss.149 of the 1988 Act, it is relevant to trace the
historical development of the law for compulsory third –party insurance in England. Prior to
1930, there was no law of compulsory insurance in respect of third party rights in England.
As and when an accident took place an injured used to bring action against the motorist for
recovery of damages.

But in many cases it was found that the owner of the offending vehicle had no means to pay
to the injured or the dependant of the deceased and in such a situation the claimants were
unable to recover damages. It is under such circumstances that various legislations were
enacted. To meet the situation it is for the first time ‘the Third Parties’ Rights Against
Insurance Act,1930’ was enacted in England. The provision of this Act found place in S.97
of the 1939 Act which gave to the third party a right to sue insurer directly. Subsequently,
‘the road traffic Act,1930’ was enacted which provided for compulsory insurance for Motor
Vehicles. The provisions of this Act were engrafted in S.95 of the 1939 Act and S.146 of the
1988 Act. It is relevant that under S.38 of the English Act of 1930, certain conditions of
insurance policy were made ineffective so far as third parties were concerned .The object
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behind the provision was that the third party should not suffer on account of failure of the
insured to comply with those terms of the insurance policy.

Subsequently in 1934, the second Road Traffic Act was enacted. The object of this
legislation was to satisfy the liability of the insured. Under this enactment three actions were
provided .The first was to satisfy the award passed against the insured. The second was that,
in case the insurer did not discharge its liability the claimant had the right to execute decree
against the insurer. However, in certain events, namely, what was provided in section
Ss.96(2)(a) which corresponds to section 149 (2)(a) of the 1988 Act, the insurer could
defend his liability.

The third action provided for was contained in S.10(3) of the Road Traffic Act. Under this
provision, the insurer could defend his liability to satisfy decree on the ground that insurance
policy was obtained due to misrepresentation or fraud. This provision also found place in
S.149 (2)(b) of the 1988 Act. While enacting the 1939 Act and the 1988 Act, all the three
actions were engrafted in S.96 of the 1939 Act and Section 149 of the 1988 Act. However
neither the 1939 Act, nor the 1988 Act conferred greater rights on the insurer than what had
been conferred in English Law. Thus, in common law, an insurer was not permitted to
contest a claim of a claimant on merits, i.e. offending vehicle was not negligent or there was
contributory negligence. The insurer could contest the claim only on statutory defenses
specified for in the statute. Thus while enacting Chapter VIII of the 1939 Act or Chapter XI
of the 1988 Act, the intention of the legislature was to protect third party rights and not the
insurers even though they may be nationalized companies.”

Prohibition on use of motor vehicles without statutory insurance policy, object of is to

enable the third party suffering injuries from use of the motor vehicle to get damages
irrespective of the financial capacity or solvency of the driver or the owner.

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Relevant Provisions of Motor Vehicles Act, 1988

Chapter 11 (Section 145 to 164) provides for compulsory third party insurance, which is
required to be taken by every vehicle owner. It has been specified in Section 146(1) that no
person shall use or allow using a motor vehicle in public place unless there is in force a
policy of insurance complying with the requirement of this chapter.[3] Contravention of the
provisions of section 146 is an offence and is punishable with imprisonment which may
extend to three months or with fine which may extend to one thousand rupees or with both
(section 196).Section 147 provides for the requirement of policy and limit of liability. Every
vehicle owner is required to take a policy covering against any liability which may be
incurred by him in respect of death or bodily injury including owner of goods or his
authorized representative carried in the vehicle or damage to the property of third party and
also death or bodily injury to any passenger of a public service vehicle. According to this
section the policy not require covering the liability of death or injuries arising to the
employees in the course of employment except to the extent of liability under Workmen
Compensation Act. Under Section 149 the insurer have been statutorily liable to satisfy the
judgment and award against the person insured in respect of third party risk.

Insurance Companies have been allowed no other defense except

the following:

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(1) Use of vehicle for hire and reward not permit to ply such vehicle.
(2) For organizing racing and speed testing;
(3) Use of transport vehicle not allowed by permit.
(4) Driver not holding valid driving license or have been disqualified for holding such
license.
(5) Policy taken is void as the same is obtained by non-disclosure of material fact.

Section152. Settlement between insurers and insured persons.

(1) No settlement made by an insurer in respect of any claim which might be made by a third
party in respect of any liability of the nature referred to in clause (b) of sub-section (1) of
section 147 shall be valid unless such third party is a party to the settlement.

(2) Where a person who is insured under a policy issued for the purposes of this Chapter has
become insolvent, or where, if such insured person is a company, a winding up order has
been made or a resolution for a voluntary winding up has been passed with respect to the
company, no agreement made between the insurer and the insured person after the liability
has been incurred to a third party and after the commencement of the insolvency or winding
up, as the case may be, nor any waiver, assignment or other disposition made by or payment
made to the insured person after the commencement aforesaid shall be effective to defeat the
rights transferred to the third party under this Chapter, but those rights shall be the same as if
no such agreement, waiver, assignment or disposition or payment has been made.

Legal defense available to the Insurance Companies towards third

party:
The Insurance Company cannot avoid the liability except on the grounds and not any other
ground, which have been provided in Section 149(2). In recent time, Supreme Court while
dealing with the provisions of Motor Vehicle Act has held that even if the defense has been
pleaded and proved by the Insurance Company, they are not absolve from liability to make
payment to the third party but can receive such amount from the owner insured. The courts
one after one have held that the burden of proving availability of defense is on Insurance
Company and Insurance Company has not only to lead evidence as to breach of condition of
policy or violation of provisions of Section 149(2) but has to prove also that such act
happens with the connivance or knowledge of the owner. If knowledge or connivance has
not been proved, the Insurance Company shall remain liable even if defense is available.

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Driving License:
Earlier not holding a valid driving license was a good defense to the Insurance Company to
avoid liability. It was been held by the Supreme Court that the Insurance Company is not
liable for claim if driver is not holding effective & valid driving license. It has also been held
that the learner's license absolves the insurance Company from liability, but later Supreme
Court in order to give purposeful meaning to the Act have made this defense very difficult.

In Sohan Lal Passi's v. P. Sesh Reddy[4] it has been held for the first time by the Supreme
Court that the breach of condition should be with the knowledge of the owner. If owner's
knowledge with reference to fake driving license held by driver is not proved by the
Insurance Company, such defense, which was otherwise available, can not absolve insurer
from the liability. Recently in a dynamic judgment in case of Swaran Singh [5], the Supreme
Court has almost taken away the said right by holding;
(i) Proving breach of condition or not holding driving license or holding fake license or
carrying gratuitous passenger would not absolve the Insurance Company until it is proved
that the said breach was with the knowledge of owner.
(ii) Learner's license is a license and will not absolve Insurance Company from liability.
(iii) The breach of the conditions of the policy even within the scope of Section 149(2)
should be material one which must have been effect cause of accident and thereby absolving
requirement of driving license to those accidents with standing vehicle, fire or murder during
the course of use of vehicle.

This judgment has created a landmark history and is a message to the Government to remove
such defense from the legislation as the victim has to be given compensation.

Nature and Extent of Insurer’s Liability (section 147)

According to the provisions of this section the policy of insurance must be issued by an
authorized insurer.It must be as per requirements as specified in subsection (2).It must insure
against liability in respect of death or bodily injury or damage to property of a third party.
“Third party” includes owner of the goods or his authorized representative carried in the
vehicle and any passenger of a public service vehicle.

The policy of insurance must cover:

1.Liability under the Workmen’s compensation Act, 1923 in respect of death or bodily
injury to any such employee
(a) engaged in driving the vehicle, or
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(b) the conductor or ticket examiner if it is a public service vehicle, or

2. Any contractual liability

Section 147 has to be given wider, effective and practical meaning so that it may benefit
various categories of persons entitling them to claim compensation from the insurer or the
insured or both. Insurer's liability commences as soon as the contract of insurance comes
into force. The liability remains in existence during the operation of the policy. If the
existing policy is renewed the risk is covered from the moment the renewal of the policy
comes into force. If the accident occurs before the renewal comes into existence, the insurer
cannot be made liable. It is the primary duty of the vehicle owner to prove that his vehicle
was insured with a particular company. If he fails to comply with it he will have to pay the
entire amount of compensation in the case. In case where there is a dispute in respect of the
vehicle having been insured by an assurance company, the tribunal must give its finding in
the matter, it is its duty to do so. After a certificate of insurance is issued it does not lie in the
mouth of the insurer to deny his liability. If the insurer has been a victim of fraud he can
recover the amount from the insured by a separate action against him.

Oriental Insurance Co. v. Inderjit Kaur [6]

If the insurer has issued a policy to cover the bus without receiving the premium therefore,
he has to indemnify third parties in respect of the liability covered by the policy. He cannot
avoid the liability arguing that he was entitled to avoid or cancel the contract.

Liability for injury to certain persons or class of persons (other than gratuitous passengers
and pillion riders)

The policy under the Act covers only third party risks.[7] Insurer is not liable for any harm
suffered by a passenger traveling in a private car neither for hire nor for reward. Similar is
the position of a pillion rider on a scooter.

K. Gopal Krishnan v. Sankara Narayanan[8]

In this case Madras High Court observed that a scooter-owner is not bound to take out a
third party risk policy to cover the claim of the pillion rider that is carried gratuitously. If he
is injured , the insurance company would not be liable unless policy covering such risk is
obtained by the scooter-owner. A private carrier registered as such with R.T.O. and also in
insurance policy , cannot be used for carrying any passenger or goods for hire or reward.
However if it is so used and the employees of a party hiring the private vehicle belonging to
the insured are injured in an accident the insurance company will not be liable.
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Insurer’s liability to Vehicle-owner
A contract of insurance is a personal contract between the insurer and the insured. It is for
the purpose of indemnifying the insured for damage caused due to accident by the vehicle, to
a third party. To make the insurer liable the policy of insurance must be in the name of the
owner of the vehicle.[9]Owner of the vehicle as defined in Section 2(30) is a person in
whose name the motor vehicle stands registered.

A person in possession of a vehicle under a hire-purchase agreement or an agreement of

lease or hypothecation is also covered by the definition, no matter he has exercised his
option to purchase the vehicle or not.

Section 157(1) makes it clear that when the owner of a vehicle transfers the ownership of the
vehicle, the policy of insurance and the certificate of insurance shall be deemed to have been
transferred in favour of the purchaser of the vehicle with effect from the date of its transfer.
This deemed transfer shall include transfer of rights and liabilities of the said certificate of
insurance and policy of insurance.

According to subsection (2) the transferee has to apply within 14 days from the date of
transfer to the insurer for effecting necessary changes in the certificate and in the policy of
insurance.
If the certificate of insurance and the policy are not transferred , the insurer could not be
made liable even though the vehicle is transferred. It is to be remembered that “an insurance
policy is a personal contract between the parties for indemnifying the insured in case of an
accident covered under the policy. If the vehicle is transferred by an insured to another
person, the insurance policy lapses upon the transfer. In such a case the benefit of the policy
is not available to the transferee, without an express agreement with the insurance company.
When the insurance policy lapses it would not be available to cover the liability of the
purchaser of the vehicle.

S.Sudhakaran v. A.K.Francis,[10]

There was an agreement for sale of a vehicle. The owner did not comply with the statutory
provisions regarding transfer of a vehicle.He, however ,allowed the vehicle to be used by the
transferee .The owner had retained the insurance policy with him.

Held— the insurance company was not liable to indemnify the owner.

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Liability in respect of damage to property [S.147 (2)]

For damage to property of a third party under 1939 Act the limit of liability is Rs 6000 in all,
irrespective of the class of the vehicle. Under 1988 Act the position as laid down by section
147 (2) in regard to liability is as under:
(i) For death or personal injury to a third party, the liability of the insurer is the amount of
liability incurred, i.e. for the whole amount of liability.
(ii) For damage to property of a third party the liability of the insurer is limited to Rs. 6000
as was under the 1939 Act.

Liability of Insurer beyond the limits mentioned in the Act

Section 147 lays down the limits of liability of the insurer. However there is no bar for the
insurer undertaking a higher liability i.e. liability for a greater amount than that mentioned in
the Act. Thus the insured and the insurer can contract and can provide for a higher liability.

FINAL ACCOUNTS OF INSURANCE COMPANIES

Insurance is a form of contract under which one party agrees in return of a consideration to
pay an agreed amount of money to another party to compensate for a loss, damage or some
uncertain event.

There are two types of insurance i.e., Life insurance and General Insurance.

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Life Insurance – under this type of insurance the corporation guarantees to pay a certain sum
of money to the policy holder on reaching a certain age or on his death whichever is earlier.
Life insurance has an element both of protection and investment.

General Insurance – it includes all other types of insurance except life insurance. e.g. – Fire,
Marine, Accident, Theft.etc. Under this type of insurance the insurer undertakes to
indemnify the loss suffered by the insured on happening of a certain event in consideration
for a fixed premium. Insurance Regulatory and Development Authority (IRDA)

In order to regulate the insurance business, the government set up in 1996, the Insurance
Regulatory Authority (IRA). Now this authority is known as the Insurance Regulatory and

Preparation of Financial Statements

Final Accounts of Life Insurance Companies

The final accounts of a life insurance company consist of (a) Revenue Account, (b) P&L A/c
and (c) Balance Sheet.

Revenue Account (Form A‐RA)

Revenue Account is prepared as per the provisions of IRDA regulations 2002 and complies
with the requirements of Schedule A as follows:

FORM A – RA

Name of the insurer

Registration No. and Date of Registration with the IRDA

Revenue Account for the year ended 31st March, 20….

Policyholders’ Account (Technical Account)

No Particulars Sched Current Previous

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 ule Year Year

. (Rs.’000) (Rs.’000)

Premiums earned – net

(a) Premium 1

(b) Reinsurance ceded

(c) Reinsurance accepted

Income from investments

(a) Interest, dividends & rent – Gross

(b) Profit on sale/redemption of

investments

(c) (Loss on sale/redemption of

investments)

(d) Transfer/ Gain on revaluation/change

in fair value*

Other income (to be specified) Total (A)

Commission

Operating Expenses related to insurance

business

Provision for doubtful debts Bad debts

written off Provision

for tax

Provisions (other than taxation)

(a) For diminution in the value of

investments (net)

(b) Others (to be specified) Total (B) 2

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 Benefits Paid (Net) Interim Bonuses paid

Change in valuation of liability in respect 3

of life policies

(a) Gross**

(b) Amount ceded in Reinsurance

(c) Amount accepted in Reinsurance

Total (C)

Surplus (Deficit) (D)=(A)‐(B)‐(C)

Appropriations

Transfer to Shareholders’ Account 4

Transfer to Other Reserves (to be

specified) Balance

being Funds for Future Appropriations

Total (D)

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Profit And Loss Account (Form A‐PL)

The P&L A/c is prepared to calculate the overall profit of the life insurance business. The
incomes or expenses that are not related to any particular fund are recorded in the P&L A/c.

FORM A ‐ PL

Name of the insurer

Registration No. and Date of Registration with the IRDA

st

Profit and Loss Account for the year ended 31 March, 20….

Shareholders’ Account (Non‐technical Account)

No. Particulars SchedulCurrent Previous

e Year Year
(Rs.’000) (Rs.’000)

Amounts transferred from/to the

Policyholders Account (Technical
Account )

Income from investments

(a) Interest, dividends & rent – Gross

(b) Profit on sale/redemption of

investments

(c) (Loss on sale/redemption of

investments) Other income (to be
specified)

Total (A)

Expenses other than those directly related

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 to the insurance business

Bad debts written off Provision for tax

Provisions (other than taxation)

(a) For diminution in the value of

investments (net)

(b) Provision for doubtful debts

(c) Others (to be specified) Total

(B)

Profit (Loss) before tax Provision for

taxation Appropriations

(a) Balance at the beginning of the year

(b) Interim dividends paid during the year
(c)

Proposed final dividend

(d) Dividend Distribution Tax

(e) Transfer to Reserves/other

accounts (to be specified)

Profit carried to the Balance Sheet

Notes to Form A‐RA and A‐PL:

(a) Premium income received from business concluded in and outside India shall be
separately disclosed.

(b) Reinsurance premiums whether on business ceded or accepted are to be brought into
account gross (i.e., before deducting commissions) under the head reinsurance
premiums

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 (c) Claims incurred shall comprise claims paid, specific claims settlement costs
wherever applicable and change in the outstanding provisions for claims at the year‐
end.

(d) Items of expenses and income in excess of one percent of the total premiums (less
reinsurance)

or Rs.500000 whichever is higher, shall be shown as a separate line item.

(e) Fees and expenses connected with claims shall be included in claims.

(f) Under the sub‐head “Others” shall be included items like foreign exchange gains or
losses and other items.

(g) Interest, dividends and rentals receivable in connection with an investment should be
stated at gross amount, the amount of income tax deducted at source being included
under “advance taxes paid and taxes deducted at source”.

(h) Income from rent shall include only the realized rent. It shall not include any notional
rent.

Balance Sheet (Form A‐BS)

Balance Sheet of Life Insurance Company is prepared in vertical format. The form of
Balance Sheet is as follows:

No. Particulars Sched Current Previous

ul Year Year
(Rs.’000 (Rs.’000)
)

Sources of Funds

Shareholders’ Funds:

Share Capital Reserves

and Surplus 5

Credit/[Debit] Fair Value Change 6

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 Account

Sub‐Total Borrowings

Policyholders’ Funds:

Credit/[Debit] Fair Value Change

Account

Policy Liabilities 7

Insurance Reserves

Provision for Linked Liabilities

Sub‐Total

Funds for Future Appropriations

Total

Application of Funds

Investments

Shareholders’

Policyholders’

Assets held to Cover 8

Linked Liabilities 8A

Loans 8B

Fixed Assets 9

Current Assets 10

Cash and Bank Balances

Advances and Other 11

Assets Sub‐ Total (A) 12

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 Current Liabilities

Provisions 13

Sub‐ Total (B ) 14

Net Current Assets

(C)=(A)‐ (B)

Miscellaneous

Expenditure (to the extent 15

not written off or

adjusted)

Debit Balance in Profit

and Loss Account

(Shareholders’ Account)

Total

SCHEDULES FORMING PART OF FINANCIAL STATEMENTS SCHEDULE 1 ‐

PREMIUM

No Particulars Current Previous

. Year Year

(Rs.’000 (Rs.’000)
)

. First Year Premiums

Renewal Premiums Single Premiums Total

Premium

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SCHEDULE 2 COMMISSION EXPENSES

Particulars Current Previous

Year Year

(Rs.’000 (Rs.’000

Commission paid Direct ‐ First Year

Premiums Renewal

Premiums Single Premiums

Add: Commission on Re‐insurance Accepted Less:

Commission on Re‐insurance Ceded

Net Commission

Note: The profit/commission, if any, are to be combined with the Re‐insurance accepted or
Re‐ insurance ceded figures.

SCHEDULE 3

OPERATING EXPENSES RELATED TO INSURANCE BUSINESS

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000

. Employees’ remuneration & welfare benefits

Travel, conveyance and vehicle running
expenses Training expenses

Rents, rates & taxes Repairs

Printing & stationery Communication expenses

Legal & Professional charges Medical fees
Auditors’ fees, expenses etc
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 (a) As auditor

(b) As adviser or in any other capacity, in

respect of:

(i) Taxation matters

(ii) Insurance matters

(iii) Management services; and

(c) In any other capacity Advertisement and

publicity Interest and bank

charges Others(to be specified) Depreciation

Total

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SCHEDULE 4 –

BENEFITS PAID [NET]

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000)
)

. Insurance Claims:

(a) Claims by Death

(b) Claims by Maturity

(c) Annuities/Pension payment

(d) Other benefits, specify. (Amount

ceded in reinsurance):

(a) Claims by Death

(b) Claims by Maturity

(c) Annuities/Pension payment

(d) Other benefits, specify. Amount

accepted in reinsurance:

(a) Claims by Death

(b) Claims by Maturity

(c) Annuities/Pension payment

(d) Other benefits, specify. Total

Notes: (a) claims include specific claims settlement costs, wherever applicable. (b)Legal and
other fees and expenses shall also form part of the claims cost, wherever applicable.

SCHEDULE 5 SHARE CAPITAL

No Particulars Current Previous

. Year Year
(Rs.’000 (Rs.’000

Authorised capital

Equity shares of Rs…..each

Issued Capital

Equity shares of Rs…..each

Subscribed Capital

Equity shares of Rs…..each

Called‐up Capital

Equity shares of Rs…..each

Less: Calls unpaid

Add: Shares forfeited (Amount originally paid

up) Less: Par value of equity shares bought
back

Less: Preliminary Expenses

Expenses including commission or brokerage

on underwriting or subscription of shares

Total
SCHEDULE 5A – PATTERN OF SHAREHOLDING [As certified by the Management]

Current Year Previous Year

Shareholders No. of % of No. of % of

Shares Holdin Shares Holdin

Promoters

*Indian

*Foreign

Others

Total

SCHEDULE 6 – RESERVES AND SURPLUS

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000

. Capital Reserve

Capital Redemption Reserve Share Premium

Revaluation Reserve General Reserves

Less: Debit balance in P&L A/c, if any Less:

Amount utilized for buy

back. Catastrophe Reserve Other Reserves

(to be specified)

Balance of Profit in P&L A/c

Note: Additions to and deductions from the reserves shall be disclosed under each of the
specified heads.

SCHEDULE 7 – BORROWINGS

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000)
)

1. Debentures/Bonds Banks

2. Financial Institutions Others (to be specified)

3. Total

4.

SCHEDULE 8 – INVESTMENTS

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000)
)

Long –term Investments

1. Government securities and Government

Guaranteed Bonds including treasury bills

Other approved securities

2.
3. Other investments

(a) Shares (aa) Equity

(bb) Preference

(b) Mutual Funds

(c) Derivative Instruments

(d) Debentures/Bonds

(e) Other securities (to be specified)

(f) Subsidiaries

(g) Investment Properties – Real Estate

Investments in Infrastructure and Social sector
4. Other than Approved Investments
5. Short –term Investments
1. Government securities and Government
2. Guaranteed Bonds including treasury bills

3. Other approved securities Other investments

(a) Shares (aa) Equity

(bb) Preference

(b) Mutual Funds

(c) Derivative Instruments

(d) Debentures/Bonds

(e) Other securities (to be specified) (f)

Subsidiaries

(g) Investment Properties – Real Estate

Investments in Infrastructure and Social sector
Other than Approved Investments
 Total

SCHEDULE 9– LOANS

No Particulars Current Previous

Year Year
.
(Rs.’000) (Rs.’000)

1. Security‐wise Classification

Secured

(a) On mortgage of property (aa) In India

(bb) Outside India

(b) On Shares, Bonds, Govt. Securities, etc.

(c) Others (to be specified) Unsecured

Total

2. Borrower‐wise Classification

(a) Central and State Governments

(b) Banks and Financial Institutions

(c) Subsidiaries

(d) Companies

(e) Loans against policies

(e) Others (to be specified) Total

3. Performance‐wise Classification

(a) Loans classified as standard (aa) In India

(bb) Outside India

(b) Non‐standard loans less provisions

(aa) In India
(bb) Outside India

Total
 4. Maturity‐wise Classification

(a) Short Term

(b) Long Term Total

SCHEDULE 10– FIXED ASSETS

Particulars Cost/Gross Block Depreciation Net

Block

Additions

Adjustme
On Sales/
Deductio

Previous
Opening

To Date
Closing

For the
Up to

As at
Goodwill
Intangibles
(specify) Land‐
Freehold Leasehold
Property Buildings

Furniture &
Fittings
Information
Technology
Equipment
Vehicles

Office Equipment
Others (Specify
nature) Total

Work in progress
Grand Total
Previous Year

SCHEDULE 11– CASH AND BANK BALANCES

No. Particulars Current Previous
Year Year

(Rs.’000 (Rs.’000)
)

1. Cash (including cheques, drafts and stamps)

2. Bank Balances

(a) Deposit Accounts

(aa) Short‐term (due within 12 months of the

date of Balance Sheet)

(bb) Others

(b) Current Accounts

3.
(c) Others (to be specified)

Money at call and short notice

4.
(a) With banks

(b) With other institutions Others (to be

specified)

Total

Balances with non‐scheduled banks in 2 and 3

above

Cash and Bank Balances

1. In India

2. Outside India

Total
SCHEDULE 12– ADVANCES AND OTHER ASSETS

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000)
)

Advances

1. Reserve deposits with ceding companies

Application money for investments
2.
Prepayments
3.
Advances to Directors/Officers
4. Advance tax paid and taxes deducted at source
5. (Net provision for taxation)

6. Others (to be specified) Total (A)

Other Assets

Income accrued on investments Outstanding

1.
Premiums
2.
Agents’ balances
3. Foreign Agencies Balances
4. Due from other entities carrying on insurance
5. business (including reinsurers)

6. Due from subsidiaries/holding company

7. Deposit with Reserve Bank of India [Pursuant

to section 7 of Insurance Act, 1938]
8.
Others (to be specified) Total (B)

Total (A+B)
SCHEDULE 13– CURRENT LIABILITIES

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000)
)

1. Agents’ balances

2. Balances due to other insurance companies

Deposits held on re‐insurance ceded Premiums
3.
received in advance
4.
Unallocated premium Sundry creditors
5.
Due to subsidiaries/holding company Claims
6. outstanding

7. Annuities due

8. Due to Officers/Directors Others (to be

specified) Total
9.

10.

11.

SCHEDULE 14– PROVISIONS

No Particulars Current Previous

Year Year
.
 1. For taxation (less payments and taxes deducted
at source)

2. For proposed dividends

3. For dividend distribution tax Others (to be

specified) Total
4.

SCHEDULE 15– MISCELLANEOUS EXPENDITURE (To the extent not written off or
adjusted)

No Particulars Current Previ

Year ous
.
(Rs.’000) Year

1. Discount allowed on issue of shares/debentures

2. Others (to be specified)

Total

Types of Life Insurance Policies

1. Whole life policy - In this type of policy, the sum assured becomes payable to
the beneficiary only on the death of the insured. The insured has to pay the
premium throughout his life.

2. Endowment policy - It is a policy which runs for a fixed period or up to a

particular age to the insured.

3. With profit policy - In this policy, the policy holder to receive , in addition to
the sum assured , a share in the profit made by the Life insurance Corporation.

4. Without profit policy - In this policy, the holder gets only the stated sum on
the maturity of the policy.

Explanation of items in the final accounts of Life Insurance Company

Claims - The amount paid or payable by the insurance company to the insured for the losses
occurs or the particular event happens is called claims. A claim is usually the expenditure of
an insurance company.

Annuity - Annuity is an annual payment which a life insurance company guarantees to pay
for a lumpsum money received in the beginning.

Surrender value of a policy - Surrender value is the amount paid by the insurance
company to the insured for surrendering all claims of the policy to the company.. Usually
this amount will get after the payment of two annual premiums.

Bonus in Reduction of Premium - Here, instead of paying bonus in cash to the policy
holders, the insurance company deducts the amount from the premium payable to it. The
amount of bonus so adjusted in the premium amount is called bonus in reduction of
premium.

Consideration for Annuities Granted – Any lumpsum payment received by the insurance
company in lieu of granting annuity is called consideration for annuities granted.

Reinsurance - When an insurance company undertakes a big policies in large amount, they
reduce their risks by re-insuring it with other insurance companies. Such a process is called
reinsurance.

Double insurance - If the same subject matter is insured with more than one insurance
company, it is known as Double insurance.

Life assurance fund - It is an accumulated reserve fund which is created from excess of
income over expenditure in every year.
Reversionary bonus - Reversionary bonus is a bonus which is paid by the insurance
company along with the maturity value of the policy.

Commission on reinsurance ceded and Commission on reinsurance Accepted

Insurance companies earn commission from other insurance companies for giving them
business under reinsurance contract. This commission is called commission on reinsurance
ceded. If some other insurance companies give insurance to us, commission paid on such
reinsurance is called commission on reinsurance accepted.

Determination of Profit in Life Insurance Business

A life policy is generally taken for a number of years. The premium received for such long
term contract cannot be treated as income for ascertaining the profits for that year. The
future premium may or may not be received depends on the existence of the insured. Thus
on a particular date a liability of the corporation is to be calculated as the premium to be
received in future will generally be less than the amount payable as claims. There is a gap
between claims which are expected to arise and premium which are expected to be received.
The gap is known as Net liability. It becomes desirable to create a reserve equal to its net
liability in order to ascertain the profit. The Life insurance business made the valuation of
net liability every year in order to ascertain the profit. This is done by a person called
Actuary. The process by which net liability is ascertained by this person is known as
actuarial valuation. The net liability is compared with life assurance fund on a particular
datein order to ascertain the surplus or deficiency. This comparison is made by preparing
a Valuation Balance sheet, which is given as follows: -

Valuation Balance Sheet

Liabilities Amount Assets Amount

Net Liability as per Life Assurance Fund

Actuary’s Deficit (Bal. Fig)
valuation

Surplus (Bal. Fig)

Only surplus and not deficiency will be shown in the Balance sheet. With profit policy
holders have a right to participate in the profits of life insurance business to the extent of
95% of true profit. The balance 5% may be utilized for such purpose as determined by the
central government. For calculation of true profit, surplus as disclosed by the valuation
Balance sheet must be adjusted.

Surplus as per Valuation Balance Sheet ………

Less: Actuarial expenses …….

Dividends payable to shareholders ……..

……..

Add: Interim bonus paid ……..

Surplus ………

95% of net profit is payable as bonus to policyholders. While paying the above bonus,
interim bonus paid already has to be deducted

Final Accounts of General Insurance Companies

General insurance companies may be doing more than one business e.g., fire, marine etc.

Fire insurance - In this insurance, the company undertakes to compensate loss caused by
fire in consideration of premium received.

Marine insurance - In this insurance, in consideration of premium received, the company

undertakes to compensate loss caused by marine risks as per terms of insurance.

The final accounts of a general insurance company consist of (a) Revenue Account,

(b) P&L A/c and (c) Balance Sheet.

Revenue Account (Form B‐RA)

General insurance company may be doing more than one business like fire, marine,
accidental etc. For each type of business a separate Revenue Account is to be prepared in the
prescribed form B‐RA. The form of Revenue Account is given below:

FORM B – RA

Name of the insurer

Registration No. and Date of Registration with the IRDA

Revenue Account for the year ended 31st March, 20…. Policyholders’ Account (Technical
Account

No Particulars Sched Current Previous

ule Year Year
.
(Rs.’000 (Rs.’000)
)

1. Premiums Earned (Net) 1

2. Others (to be specified)

3. Change in Provisions for unexpired risk

4. Interest, Dividend & Rent ‐ Gross

Total (A)

1. Claims Incurred

2. Commission

3. Operating Expenses related to insurance 2

business

4. Others (to be specified) 3

 Total (B) 4

Operating Profit/ (Loss) from Fire/

Marine/

Miscellaneous business (C)=(A‐B)

Appropriations

Transfer to Shareholders’ Account

Transfer to Catastrophe Reserve

Transfer to Other Reserves (to be

specified)

Total (C)

Profit And Loss Account (Form B‐PL)

The P&L A/c is prepared to calculate the overall profit of the general insurance business.
Operating profits (or losses) of fire, marine and miscellaneous insurance are taken in the
P&L A/c. income from investments, profit or loss on sale of investments, bad debts,
provision for doubtful debts etc. are taken in the P&L A/c.

FORM B-PL

Name of the insurer

Registration No. and Date of Registration with the IRDA

Profit and Loss Account for the year ended 31st March, 20….

Shareholders’ Account (Non‐technical Account)

No Particulars Sched Current Previous
ule Year Year
.
(Rs.’000 (Rs.’000)
)

1. Operating Profit/ (Loss)

(a) Fire Insurance

(b) Marine Insurance

(c) Miscellaneous

Insurance

2. Income from investments

(d) Interest, dividends &

rent – Gross

(e) Profit on sale/redemption of

investments

Less: Loss on sale of investments

3. Other income (to be

specified) Total (A)

4. Provisions (other than

taxation)

(a) For diminution in the

value of investments

(net)

5. (b) For Doubtful Debts

(c) Others (to be specified)

Other Expenses

(a) Expenses other than

those directly related

to the insurance business

(b) Bad debts written off

(c) Others (to be specified)

Total (B)

Profit before tax Provision

for taxation Profit after tax

Appropriations

(f) Interim dividends paid

during the year

(g) Proposed final

dividend

(h) Dividend Distribution

Tax

(i) Transfer to Reserves or

other accounts (to be

specified)

Balance of Profit/Loss

brought forward fro last

year

Balance carried forward to

the Balance Sheet

Balance sheet FORM B – BS

Balance Sheet of Life Insurance Company is prepared in vertical format. The form of
Balance Sheet is as follows:

Name of the Insurer

Reg,N o and date of registration with IRDA

Balance Sheet as at 31st March, 20….

No Particulars Sched Current Previous

ule Year Year
.
(Rs.’000 (Rs.’000)
)

Sources of Funds

Shareholders’ Funds:

Share Capital

Reserves and Surplus 5

Fair Value Change Account 6

Borrowings

Total

Application of Funds 7

Investments

Loans

Fixed Assets

Current Assets 8

Cash and Bank Balances 9

Advances and Other Assets 10

 Sub‐Total (A)

Current Liabilities 11

Provisions 12

Sub‐Total (B)

Net Current Assets (C)=(A)‐(B) 13

Miscellaneous Expenditure (to the extent
14
not

written off or adjusted)

Debit Balance in Profit and Loss

Account

Total 15

SCHEDULES FORMING PART OF FINANCIAL STATEMENTS SCHEDULE 1 –

PREMIUM EARNED [NET]

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000)
)

Premium for direct business written Add:

Premium on reinsurance accepted Less:
premium on reinsurance ceded Net Premium

Total Premium Earned (Net)

Note: Reinsurance premiums whether on business cede or accepted are to be bought into
account, before deducting commission under the head of reinsurance premiums.
SCHEDULE 2 – CLAIMS INCURRED [NET]

Particulars Current Previous

Year Year
(Rs.’000 (Rs.’000)
)

Claims paid Direct

Add: Reinsurance accepted Less: Reinsurance ceded

Net Claims paid

Add: Claims outstanding at the end of the year Less:

Claims outstanding at the beginning Total Claims
Incurred

SCHEDULE 3 – COMMISSION

Particulars Current Previous

Year Year
(Rs.’000 (Rs.’000)
)

Commission paid Direct

Add: Commission on Re‐insurance Accepted Less:

Commission on Re‐insurance Ceded

Net Commission

Note: The profit/commission, if any, are to be combined with the Re‐insurance accepted or
Re‐ insurance ceded figures.

SCHEDULE 4 – OPERATING EXPENSES RELATED TO INSURANCE BUSINESS

No Particulars Current Previous

Year Year
 . (Rs.’000 (Rs.’000)
)

1. Employees’ remuneration & welfare benefits

2. Managerial remuneration

3. Travel, conveyance and vehicle running

expenses

4. Rents, rates & taxes

5. Repairs

6. Printing & stationery Communication expenses

Legal &

7. Professional charges Medical fees

8. Auditors’ fees, expenses etc

9. (a) As auditor

10. (b) As adviser or in any other capacity, in respect

of: (j)

Taxation matters

(ii) Insurance matters

(iii) Management services; and

(c) In any other capacity Advertisement and

publicity Interest &

bank charges Others(to be specified)

Depreciation

Total

Note: Items of expenses and income in excess of one percent of the total premiums (less
reinsurance) or Rs.500000 whichever is higher, shall be shown as a separate line item.
SCHEDULE 5 – SHARE CAPITAL

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000)
)

1. Authorised capital

2. Equity shares of Rs…..each

3. Issued Capital

4. Equity shares of Rs…..each

Subscribed Capital

Equity shares of Rs…..each

Called‐up Capital

Equity shares of Rs…..each

Less: Calls unpaid

Add: Equity Shares forfeited (Amount

originally paid up) Less: Par value of equity
shares bought back

Less: Preliminary Expenses

Expenses including commission or brokerage

on underwriting or subscription of shares

Total

Notes:

(a) Particulars of the different classes of capital should be separately stated.

(b) The amount capitalized on account of issue of bonus shares should be disclosed.
 (c) In case any part of the capital is held by a holding company, the same should be
separately disclosed.

SCHEDULE 5A – PATTERN OF

SHAREHOLDING [As certified by the Management]

Current Year Previous Year

Shareholders No. of % of No. of % of

Shares Holding Shares Holding

Promoters

*Indian

*Foreign

Others

Total

SCHEDULE 6 – RESERVES AND SURPLUS

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000)
)

1. Capital Reserve

2. Capital Redemption Reserve Securities

Premium
3.
General Reserves
4.
Less: Debit balance in P&L A/c, if any Less:
Amount utilized for buy back.
5. Catastrophe Reserve
6. Other Reserves (to be specified) Balance of
 7. Profit in P&L A/c

Total

Note: Additions to and deductions from the reserves shall be disclosed under each of the
specified heads.

SCHEDULE 7 – BORROWINGS

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000)
)

1. Debentures/Bonds Banks

2. Financial Institutions Others (to be specified)

3. Total

4.

SCHEDULE 8 – INVESTMENTS

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000)
)

Long –term Investments

1. Government securities and Government

Guaranteed Bonds including treasury bills

Other approved securities

2.

3. Other investments

(a) Shares

(aa) Equity
 (bb) Preference

(b) Mutual Funds

(c) Derivative Instruments

(d) Debentures/Bonds

(e) Other securities (to be specified) (f)

Subsidiaries

(g) Investment Properties – Real Estate

Investments in Infrastructure and Social

sector

Other than Approved Investments

Short –term Investments

Government securities and Government

Guaranteed Bonds

4. including treasury bills

5. Other approved securities

Other investments

1. (a) Shares

(aa) Equity

2. (bb) Preference

3. (b) Mutual Funds

(c) Derivative Instruments

(d) Debentures/Bonds

(e) Other securities (to be specified) (f)

Subsidiaries
(g) Investment Properties – Real Estate

Investments in Infrastructure and Social

sector

Other than Approved Investments

Total
SCHEDULE 9– LOANS

No Particulars Current Previous

Year Year
.
(Rs.’000) (Rs.’000)

1. Security‐wise Classification

Secured

(a) On mortgage of property (aa) In India

(bb) Outside India

(b) On Shares, Bonds, Govt. Securities, etc.

(c) Others (to be specified)

Unsecured

Total

Borrower‐wise Classification

SCHEDULE 10– FIXED ASSETS

Particulars Cost/Gross Block Depreciation Net

Block
As at year
Additions

On Sales/
Deductio

Previous
Opening

To Date
Closing

For the
Up to

Goodwill
Intangibles
(specify) Land‐
Freehold Leasehold
Property Buildings

Furniture &
Fittings
Information
 Technology
Equipment
Vehicles

Office Equipment
Others (Specify
nature) Total

Work in progress
Grand Total
Previous Year

SCHEDULE 11– CASH AND BANK BALANCES

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000)
)

1. Cash (including cheques, drafts and stamps)

Bank

2. Balances

(a) Deposit Accounts

(aa) Short‐term (due within 12 months)

(bb) Others

(b) Current Accounts

(c) Others (to be specified)

3. Money at call and short notice

(a) With banks

(b) With other institutions

Others (to be specified) Total

4. Balances with non‐scheduled banks in 2 and 3

above
SCHEDULE 12– ADVANCES AND OTHER ASSETS

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000)
)

Advances

1. Reserve deposits with ceding companies

Application money for investments
2.
Prepayments
3.
Advances to Directors/Officers
4. Advance tax paid and taxes deducted at source
5. (Net provision for taxation)

6. Others (to be specified) Total (A)

Other Assets

Income accrued on investments Outstanding

1.
Premiums
2.
Agents’ balances
3. Foreign Agencies Balances
4. Due from other entities carrying on insurance
5. business (including reinsurers)

6. Due from subsidiaries/holding company

7. Deposit with Reserve Bank of India [Pursuant

to section 7 of Insurance Act, 1938]
8.
Others (to be specified) Total (B)

Total (A+B)

SCHEDULE 13– CURRENT LIABILITIES

 No Particulars Current Previous
Year Year
.
(Rs.’000 (Rs.’000)
)

1. Agents’ balances

2. Balances due to other insurance companies

Deposits held on re‐insurance ceded Premiums
3.
received in advance
4.
Unallocated premium Sundry creditors
5.
Due to subsidiaries/holding company Claims
6. outstanding

7. Due to Officers/Directors Others (to be

specified)
8.
Total SCHEDULE 14–
9.

10.

PROVISIONS

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000)
)

1. Reserve for Unexpired Risk

2. For taxation (less payments and taxes deducted

at source)

3. For proposed dividends

4. For dividend distribution tax

5. Others (to be specified)

Total
SCHEDULE 15– MISCELLANEOUS EXPENDITURE (To the extent not written
off or adjusted)

No Particulars Current Previous

Year Year
.
(Rs.’000 (Rs.’000)
)

1. Discount allowed on issue of shares/debentures

2. Others (to be specified)

Total

Reserve for Unexpired Risk

Policies in general insurance are only for one year. These can be taken by the
insured at any time during the year.. premium on such policies is always paid in
advance. There may be such policies which are issued during the year but risks
covered remain unexpired at the accounting year. Hence a reserve for unexpired
risk is made at 50% of the net premium in case of fire insurance and 100%of the
net premium in marine insurance is made. Opening balance for reserve for
unexpired risk is added to the premium and closing balance of reserve
for unexpired risk is deducted from the premium. The net premium should
be shown in revenue account. The closing balance of reserve for unexpired risk
should be shown in the balance sheet under the head ‘provisions’. At present
reserve for unexpired risk will be created as follows:

a. 50% of net premium for fire insurance, marine cargo business and
miscellaneous insurances.

b. 100% of net premium for marine hull business.

In addition to the above reserve, a company can maintain more reserves. Then it is
called Additional Reserve.
Conclusion

Thus I have studied and analysed the third party liability insurance under the motor
Vehicles Act, 1988.Third party insurance protects the interest of a third party who
becomes the victim of accident or injury caused by the fault of the insured. So any
liability arising on the insured by the third party is mitigated by the insurance
company. Third party insurance is compulsory under the motor vehicles Act,1988.
As the third party insurance is mandatory so it cannot be overridden be any clause
in the insurance policy.

It is the duty of insurers to satisfy the judgments and awards against persons
insured in respect of third party risks. The insurance company is a ‘State’ within
the meaning of article 12 of the Constitution. For this reason it cannot deny ,
discriminate or refuse third party insurance cover to State run vehicles because
their actions are guided by Article 14 of the Constitution.[11]

The compulsory nature of third party insurance is justifiable as it makes the

process more easy for the injured person to recover money from the insured. The
defendant or wrongdoer cannot be exempted on the ground that he has become
insolvent. If he owns a vehicle he bound to pay to the injured directly or through
his insurance company.
Bibliography

1.B.M.Gandhi,‘Law of Torts- with Law of Statutory Compensation', Eastern Book

Company, 2nd edi,311-330
2.Avtar Singh, ‘Law of Insurance' Eastern Book Company, first edition,134-139
3.www.legalserviceindia.com
4.Course material supplied for Law of Insurance
5.Motor Vehicles Act,1988
6.Motor Vehicles Act,1939

End-notes
[1] AIR 1995 J&K 91
[2] AIR 1999 SC 1398
[4] AIR 1996 SC 2627
[5] Cited on legalserviceindia.com
[6] AIR1998 SC 588
[7] Section 147 of the 1988 Act, or section 95 of the 1939 Act.
[8] AIR 1968 Mad 438
[9] Raj Chopra v. Sangara Singh, 1985 ACJ 209 (P & H)
[10] AIR 1997 Ker 26
[11] Avtaar Singh, Law of Insurance