Can insurance companies repudiate a claim on the ground of non-registration of a stolen vehicle?

Under the Motor Vehicles Act, 1988, valid registration of a motor vehicle is a sine qua non for driving it on public roads [Section 39 of the Act]. Driving an unregistered motor vehicle is an offence punishable under the Act [Section 192 of the Act].

When a vehicle that is insured but unregistered meets with an accident, insurance companies often repudiate the insurance claim on the ground of non-registration. Such repudiation has been upheld as lawful by the Supreme Court in the case of Narinder Singh v. New India Assurance Company Ltd, wherein it has been observed that since using a vehicle on the road without registration is a violation of a statutory requirement under Section 39 of the Act, in addition to being an offence under Section 192, it would constitute a fundamental breach of the conditions of the insurance policy. Therefore, the insurer was entitled to deny liability.

In the present article, we shall examine whether non-registration of an insured vehicle is a valid ground of repudiation of insurance claims arising out of theft.

Position of law prior to the Narinder Singh ruling

In February 2012, a coordinate bench of the National Consumer Disputes Redressal Commission (NCDRC) was seized of a dispute that involved the theft of an unregistered motorcycle being driven by the complainant to drop his uncle to the railway station. Whilst ruling in favour of the insurance company, it was held that using an unregistered vehicle is in violation of Section 39 of the Act, and such violative use itself shall take the vehicle beyond the protection of the insurance policy.

However, in another similar case, the NCDRC ruled that since there is no nexus between the theft of an insured vehicle and its registration thereof, the repudiation of an insurance claim on the ground of non-registration is unjustified.

With such contradictory rulings from different benches of the NCDRC arose a cloud of oblivion around the issue of whether or not non-registration of a stolen vehicle would kill a claim of insurance.

Conflicting decisions after the Narinder Singh ruling

As seen above, the ruling in Narinder Singh was rendered specifically in the factual scenario of a motor accident. Hence, it could not be treated as a precedent for cases of theft.

This changed when in Oriental Insurance Company Limited v. Rajesh Nautiyal, the NCDRC observed that since the insured vehicle was stolen from a parking lot after it had been extensively used without registration, having run over 6,000 km, the ratio of Narinder Singh was squarely applicable.

Further, as a passing observation, the NCDRC also stated that had the vehicle been stolen from the residence of the complainant, its non-registration would not have defeated the claim as there would have been no violation of the statutory law (as merely parking an unregistered vehicle outside one’s residence is no offence). But the fact that the vehicle was stolen from a general parking lot is material to conclude that the insured vehicle was, in fact, driven without registration, thus leading to a fundamental breach of the terms of the insurance policy.

However, the observations in Rajesh Nautiyal (supra) did not stand the test of time as the NCDRC took a totally contradictory view in National Insurance Co Ltd v. Ram Diya, wherein the unregistered vehicle was driven from the residence of the complainant to a hospital. Whilst being parked outside the hospital, the vehicle was stolen.

Although the insurance company pleaded the applicability of the ratio in Narinder Singh, the NCDRC distinguished the case at hand from the facts of Narinder Singh on the premise that even though the insured vehicle was driven in a manner punishable under Section 192 of the Act, once it was parked in the hospital’s parking lot, the said offence came to an end. Thus, at the time of theft, since no statutory provisions were being violated, the repudiation of the insurance claim was totally unjustified.

This view even found affirmation from the Supreme Court with the dismissal of the special leave petition [Special Leave Petition No. 23878 of 2015] filed by the insurance company against the said judgment.

Thereafter, in Revision Petition Nos 522 of 2018 and 449 of 2018, the NCDRC reiterated the rationale laid down in Ram Diya (supra).

However, owing to multiple conflicting judgments, there was still obscurity around the issue.

Constitution of larger bench of NCDRC

In view of these conflicting decisions, a three-member bench of the NCDRC was constituted in Naveen Kumar v. National Insurance Company Ltd to conclusively answer the issue at hand.

The larger bench, after conjointly reading Sections 39, 192 and 207 of the Act, observed that even though the unregistered vehicle was parked at the time it was stolen, it could have only reached the place it was so parked at - and thereafter stolen - after it had been driven on the road in violation of statutory law. Since the act of driving the insured vehicle till the place of theft without registration would certainly constitute a fundamental breach of the terms and conditions of the insurance policy, the insurance company was well within its rights to repudiate the concerned claim.

What emanates from the ruling in Naveen Kumar (supra) is that it is immaterial that the stolen vehicle was stationary/parked at the time of theft as long as it was driven to a public place from where it was eventually stolen. It is the act of driving the vehicle to the place of theft that is in contravention of Section 39 of the Act that would entitle the insurer to reject liability. This view was eventually confirmed by the Supreme Court in United India Insurance Co. Ltd. v. Sushil Kumar Godara.

From a combined reading of the rulings in Naveen Kumar and Sushil Kumar Godara, it is seen that the repudiation of an insurance claim would only be justified, if all of the following three essentials are fulfilled:

a. The insured vehicle did not hold a valid certificate of registration.

b. Such an unregistered insured vehicle was driven on a public road, from x place to y place.

c. Such an unregistered insured vehicle was stolen/snatched from y place, whether or not it was parked/stationary.

Exceptions to the ratio laid down in Sushil Kumar Godara

The discussion above would demand the curious question: what if the insured vehicle, during its non-registration, is stolen without ever being plied on a public road? Can the insurance company then repudiate the claim on the ground of non-registration?

To answer this, it would be useful to refer to the judgment of the High Court of Kerala in Nazia Hassan v. The Branch Manager, Oriental Insurance, wherein the judgments of Narinder Singh and Sushil Kumar Godara were distinguished from the case at hand, as the insured vehicle was admittedly stolen when parked inside the residence of the insured. The High Court observed that driving an unregistered vehicle is an offence punishable under Section 192 of the Act and is, therefore, a fundamental breach of the insurance policy. But if the unregistered vehicle is not driven, then there is no proof of violation of either Section 192 of the Act or the terms of the insurance policy, and hence, the repudiation of the insurance claim is unacceptable.

A similar view has been adopted by the High Court of Punjab and Haryana in a matter wherein it has been observed that in a situation where the unregistered vehicle was stolen from outside the residence of the insured, without having been driven anywhere, there is no basis to repudiate the claim of the insured on the ground of non-registration of insured vehicle.

Conclusion

Registration of a motor vehicle after its purchase is mandatory to drive or use that vehicle on public roads. After the expiry of the temporary registration and till such permanent registration is procured, it is advisable to not drive the insured vehicle on public roads as in addition to attracting penal liability under the Act, one might also end up losing the benefits of insurance in an otherwise insurable incident, such as an accident or a theft.

Namrata Chandorkar is a law graduate from ILS Law College, Pune. She is currently practising civil and consumer litigation in New Delhi.