The Supreme Court clarified an important aspect of motor insurance law, holding that an insurance company cannot escape liability merely because a road accident occurred in Nepal when the vehicle was operating under a valid permit issued under the Motor Vehicles Act. Dismissing an appeal filed by Oriental Insurance Company Ltd., the Court ruled that the insurer must compensate the claimants arising from the fatal accident involving a passenger bus travelling on a religious tour to Nepal.
A Bench of Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh delivered the judgment on July 20, 2026, observing that insurance policies must be interpreted as a whole and that ambiguities in policy terms cannot be used to deny legitimate claims.
Background of the Case
The dispute arose from an accident involving a bus owned by Durg Roadways Private Limited, which was travelling from Durg to Nepal on a religious pilgrimage under a special permit issued by the Regional Transport Authority. During the journey, the vehicle collided with a hill in Nepal, resulting in the deaths of three persons, including driver Riaz Khan and passenger Harish Yadav.
Following the accident, the family members of Harish Yadav approached the Motor Accident Claims Tribunal seeking compensation. The Tribunal awarded compensation of ₹32.67 lakh with interest but directed the vehicle owner to satisfy the award instead of the insurer. On appeal, the Chhattisgarh High Court reversed that finding and held Oriental Insurance Company liable to pay the compensation. Challenging that decision, the insurer approached the Supreme Court.
Insurance Company's Stand
The insurer argued that the insurance policy covered only accidents occurring within India because no additional premium had been paid for extending geographical coverage to Nepal. It also contended that the driver's licence did not authorize him to operate the vehicle in Nepal, amounting to a breach of the policy conditions.
Court's Observations
Rejecting these submissions, the Supreme Court said an insurance contract cannot be interpreted by isolating one clause while ignoring the rest of the policy.
The Bench observed,
“The insurance contract must be read as a whole and every attempt should be made to harmonise the terms thereof.”
The Court noted that the bus was operating under a valid special permit issued under Section 88(8) of the Motor Vehicles Act specifically authorising travel to Nepal. According to the Bench, once such a permit existed, the "Limitation as to Use" clause in the policy became applicable and extended coverage to the permitted journey, irrespective of whether the accident occurred inside or outside India.
The judges further remarked that if insurers intend to exclude cross-border travel from coverage, they must do so in clear and express language.
The Bench observed,
“Cover what you want. Exclude what you want. But make sure you do it clearly. Sloppy drafting could cost you something.”
The Court also relied on the beneficial nature of the Motor Vehicles Act, stating that where policy terms are capable of more than one interpretation, the one favouring compensation should ordinarily prevail.
Driving Licence and Cross-Border Travel
On the insurer's argument regarding the driver's licence, the Court found no merit. It noted that the driver possessed a valid Indian driving licence and that Nepalese authorities had verified the licence and other travel documents before allowing the vehicle to cross the border.
The Bench also referred to the 1950 India-Nepal Treaty of Peace and Friendship, observing that the insurer had produced no evidence to show that the licence was invalid in Nepal. Consequently, there was no breach of the policy conditions on that ground.
Suggestions to IRDAI
While deciding the appeal, the Court acknowledged that uncertainty still exists regarding cross-border motor insurance coverage. It suggested that insurance policies should clearly specify whether foreign travel is covered and advised the Insurance Regulatory and Development Authority of India (IRDAI) to consider issuing a standard framework for cross-border coverage clauses to avoid future disputes.
Court's Decision
Dismissing the appeal, the Supreme Court upheld the High Court's decision fastening liability on the insurer. It directed Oriental Insurance Company Ltd. to pay the compensation awarded by the Tribunal along with the applicable interest.
The Court ordered that the amount, if not already deposited, must be deposited within four weeks and remitted directly to the claimants.
A copy of the judgment was also directed to be sent to IRDAI for appropriate action on the Court's recommendations.
Case Title: The Oriental Insurance Co. Ltd. v. Durg Roadways Private Limited & Others
