The issue is covered by the latest judgment of the Supreme Court in United India Insurance Company Limited v. Laxmamma & Ors., (2012) 5 SCC 234 wherein relying on Oriental Insurance Company Limited v. Inderjit Kaur, (1998) 1 SCC 371, New India Assurance Company Limited v. Rula, (2000) 3 SCC 195 and Deddappa & Ors. v. Branch Manager, National Insurance Company Limited, (2008) 2 SCC 595, the Supreme Court held as under:-
"26. In our view, the legal position is this: where the policy of insurance is issued by an authorised insurer on receipt of cheque towards the payment of premium and such a cheque is returned dishonoured, the liability of the authorised insurer to indemnify the third parties in respect of the liability which that policy covered subsists and it has to satisfy the award of compensation by reason of the provisions of Sections 147(5) and 149(1) of the MV Act unless the policy of insurance is cancelled by the authorised insurer and intimation of such cancellation has reached the insured before the accident. In other words, where the policy of insurance is issued by an authorised insurer to cover a vehicle on receipt of the cheque paid towards premium and the cheque gets dishonoured and before the accident of the vehicle occurs, such insurance company cancels the policy of insurance and sends intimation thereof to the owner, the insurance company's liability to indemnify the third parties which that policy covered ceases and the insurance company is not liable to satisfy awards of compensation in respect thereof."
10. The intimation regarding the cancellation of the Insurance Policy on account of dishonour of the cheque was done by a letter Ex.RW1/A dated 01.09.2004. Thus, intimation of cancellation of the Insurance Policy was not issued to the insured before the date of the accident. Moreover, in the instant case, the cheque was not dishonoured on account of insufficient funds. In fact, it is established that there were funds to honour the cheque issued towards premium on the date the cheque was issued and the cheque was dishonoured merely on account of alleged difference in signatures.
11. Thus, following the Supreme Court report in United India Insurance Company Limited v. Laxmamma & Ors., (2012) 5 SCC 234, the Insurance Company was under an obligation to indemnify the insured