Necessity of third party insurance? Who are exempted from it

Section 146 of the Motor Vehicles Act, 1988 provides that no person shall use ( except as a passenger), or allow any other person to use, a motor vehicle in a public place, unless the vehicle is covered by a policy of insurance complying with the requirement of the Act.

This Section is amended by Amendment Act 1994) to cast an additional duty that the owner of the vehicle carrying dangerous or hazardous goods shall also go in for a policy of insurance under the Public Liability Insurance Act, 1991.

Public whether a thoroughfare or not, to which the public have a right of access and includes any place or stand at which passengers are picked up or set down by a stage carrier. The definition states that any place or stand at which passengers are picked up or set down by a stage carriage is a PUBLIC PLACE, it shows that it is not so much concerned with the ownership of the place as with its use or user.  Ownership of place may be private but if use is public, it is a public place.

It is to be noted that it is not only driving of the vehicle without insurance will contravene the Act.  The mere presence of a motor-vehicle in a stationery condition in a public place will also constitute the ‘use.’ Secondly the use should be made in a ‘Public Place’ as defined earlier.

Any place where the public have a right to access is constituted as a “Public Place.”  All places were members of public have an access, for whatever reasons, whether as of right or controlled in any manner whatsoever, would be covered by the definition of “Public Place. However, a person driving a motor vehicle merely as a paid employee will not be treated as contravening the Act, if he has no knowledge that there is no policy in force.

Section 146 seeks to protect members of public using public places from the risks of accidents caused by the user of motor vehicles.  The motor vehicle can be likened to a wild animal; whosoever keeps it, does so at his risk. A Court can only pass an award or decree.

It cannot ensure that such an award or decree results in actual payment, because the person held liable may be insolvent or may not have sufficient resources to meet the award. To overcome the situation, the law has made it obligatory that no motor vehicle shall be used unless a third party insurance is in place.

The law also provides that the judgment obtained shall not be defeated by the incorporation of exclusion clauses in the Policy other than those authorized by Section 149 of the Motor Vehicles Act, 1988.  All motor policies therefore contain a clause called “Avoidance or certain terms and right of recovery” reading as under:

“Nothing in this policy or any endorsement hereon shall affect the right of any person to recover an amount under or by virtue of the provision of the Motor Vehicle Act.  But the Insured shall repay to the Company all sum paid by the Company, which the Company would not have been liable to pay but for the said provisions.”


The provisions relating to compulsory third party insurance do not apply to any vehicle owned by the Central Government or a State Government and used for Government of a State Government and used for Government purposes unconnected with any commercial enterprise.

Exemption may also be granted by the appropriate Government for any vehicle owned by:

  1. The Central Government or a State Government if the vehicle issued for Government purpose connected with any commercial enterprise.
  2. Any local authority
  3. Any State Transport undertaking  for example, where such undertaking is carried on by a State Government or any Road Transport Corporate established under the Road Transport Corporation Act, 1950

However, the above exemption is made only if a fund is established and maintained by that authority for meeting any liability arising out of the use of any vehicle.  The fund has to be established in accordance with the Rules framed under the Act.

Extracts from “Guide for Motor Insurance (IC-72)” by Dr. Rakesh Agarwal. Copyright of Sashi Publications, kolkata and

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