Is it permissible for insurance companies to reject a claim based on the non-registration of a stolen vehicle?

It is recommended to refrain from driving the insured vehicle on public roads after the temporary registration expires until permanent registration is obtained.

Under the Motor Vehicles Act, 1988, having valid registration for a motor vehicle is an essential requirement for driving it on public roads [Section 39]. Driving an unregistered motor vehicle is considered an offense punishable under the Act [Section 192].

In cases where an uninsured but unregistered vehicle is involved in an accident, insurance companies often reject insurance claims citing non-registration. Such rejections have been deemed lawful by the Supreme Court, as seen in the case of Narinder Singh v. New India Assurance Company Ltd. The Court observed that driving a vehicle on the road without proper registration not only violates a statutory requirement under Section 39 but also constitutes an offense under Section 192. Consequently, this action constitutes a fundamental breach of the insurance policy’s conditions, allowing the insurer to deny liability.

In this article, we will explore whether the non-registration of an insured vehicle is a valid reason for insurance claims to be repudiated in cases of theft.

(NCDRC) had issued conflicting decisions regarding the impact of non-registration on insurance claims for stolen vehicles.

• In a case from February 2012, involving the theft of an unregistered motorcycle that was being driven by the complainant to drop his uncle at the railway station, the NCDRC ruled in favor of the insurance company. It held that using an unregistered vehicle violated Section 39 of the Act, and such a violation would nullify the vehicle’s protection under the insurance policy.

However, in another similar case, the NCDRC ruled differently. It stated that there was no direct connection between the theft of the insured vehicle and its registration status. Therefore, repudiating an insurance claim based solely on non-registration was deemed unjustified. These contradictory rulings led to confusion regarding whether non-registration of a stolen vehicle would invalidate an insurance claim.

• Conversely, in National Insurance Co Ltd v. Ram Diya, the NCDRC took a contradictory stance. Despite the vehicle being driven from the complainant’s residence to a hospital, where it was stolen while parked, the NCDRC dismissed the insurance company’s plea citing the Narinder Singh ratio. They reasoned that although the vehicle was initially driven in violation of Section 192 of the Act, once parked at the hospital, the offense ceased. Thus, at the time of theft, no statutory violations occurred, rendering the repudiation of the insurance claim unjustified. This viewpoint was upheld by the Supreme Court’s dismissal of the insurance company’s special leave petition. Subsequently, in Revision Petition Nos. 522 of 2018 and 449 of 2018, the NCDRC reiterated the rationale established in the Ram Diya case.

Despite these efforts to clarify the issue, multiple conflicting judgments led to continued uncertainty surrounding the impact of non-registration on insurance claims for stolen vehicles.

• In response to the conflicting decisions, a three-member bench of the NCDRC was assembled in Naveen Kumar v. National Insurance Company Ltd to resolve the issue conclusively. After examining Sections 39, 192, and 207 of the Act, the larger bench concluded that even though the unregistered vehicle was stationary at the time of theft, it must have been driven on the road in violation of statutory law to reach the location where it was parked and subsequently stolen. Since driving the insured vehicle to the place of theft without registration constitutes a fundamental breach of the insurance policy, the insurance company was justified in repudiating the claim.

The ruling in Naveen Kumar established that the stationary status of the stolen vehicle at the time of theft is irrelevant as long as it was driven to a public place from where it was stolen. This viewpoint was later affirmed by the Supreme Court in United India Insurance Co. Ltd. v. Sushil Kumar Godara.

Considering the rulings in Naveen Kumar and Sushil Kumar Godara, the repudiation of an insurance claim would only be justified if all three of the following conditions are met: a. The insured vehicle lacked a valid certificate of registration. b. The unregistered insured vehicle was driven on a public road from one location to another. c. The unregistered insured vehicle was stolen from a specific location, regardless of whether it was parked or stationary.

• Exceptions to the principle laid down in Sushil Kumar Godara arise when the insured vehicle is stolen during its non-registration without being driven on a public road. In such cases, the judgment of the High Court of Kerala in Nazia Hassan v. The Branch Manager, Oriental Insurance, and a similar ruling by the High Court of Punjab and Haryana, emphasize that if the unregistered vehicle is stolen while parked at the insured’s residence without being driven, there is no basis for the insurance company to repudiate the claim based on non-registration.

In conclusion, registering a motor vehicle after its purchase is mandatory for driving or using it on public roads. It is essential to obtain permanent registration before the temporary registration expires. During the period between temporary and permanent registration, it is advisable not to drive the insured vehicle on public roads. Doing so not only exposes one to penal liability under the Motor Vehicles Act but also risks losing insurance benefits in case of incidents like accidents or theft. Therefore, it is crucial to adhere to registration requirements to ensure legal compliance and safeguard against potential insurance claim issues.

ADV. BHAVESH JANGRA