L.I.C.
of India & Anr Vs. Consumer Education & Research Centre & Ors
[1995] INSC 272 (10 May
1995)
Ramaswamy,
K. Ramaswamy, K. Hansaria B.L. (J) K. Ramaswamy.J.:
CITATION:
1995 AIR 1811 1995 SCC (5) 482 JT 1995 (4) 366 1995 SCALE (3)627
ACT:
HEAD NOTE:
THE
10TH DAY OF MAY, 1995 Present:
Hon'ble
Mr. Justice K.Ramaswamy Hon'ble Mr. Justice N.Venkatachala Mr.Harish Salve, Sr.
Adv. Mr.Rajiv Mehta, Mr.Kailash Vasdev and Ms. Meenakshi Grover, Advs. with him
for the Appellants Mr.Rajiv Dhawan, Sr.Adv. Mr.Arvind Kr. Sharma and Mr. P.H. Parekh,
Advs. with him for the Respondents.
The
following Judgment of the Court was delivered:
IN THE
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL
APPEAL NO.7711 OF 1994 L.I.C. of India & Anr. Verus. Consumer Education
& Research Centre & Ors.
Leave
granted.
Delay
condoned.
The
appeal and cross appeal arise from the Division Bench judgment of Gujarat High
Court dated January 31, 1994 in Spl. Civil Application No.2614 of 1980. On August 25, 1980 one Prof. Manubhai Shah Executive
Trustee of Respondent No.1 and Mr.D.N.Dalal sought policies under Table 58.
Similarly
in December,1978 Respondent Nos.2, to 4 sought similar policies for convertible
term insurance plans for different amounts. In September, 1980 Respondent Nos.6
and 7 agents of the appellants when presented proposals to the LIC under Table
58 on behalf of individual respondents and promised to cover under Table 58
other 9 crores uninsured households, the LIC turned them down. Consequently,
after issuance of a notice through counsel on September 14, 1980, the respondents filed the above writ petition. The
conditions imposed and denial to accept policies sought under Table 58 were
assailed as arbitrary, discriminatory violating Articles 14, 19(1)(g) and right
to life in Article 21 of the Constitution. The High Court while upholding that
prescription of conditions for 1st class lives as eligibility and other
criteria laid down in the policy under Table 58 are neither unjust nor
arbitrary, declared a part of the conditions, namely, "Further, proposals
for assurance under the plan will be entertained only from persons in
Government or Quasi-Government organisation or a reputed commercial firm which
can furnish details of leave taken during the preceding year under Table
58" as subversive of equality and, therefore, constitutionally invalid.
Accordingly,
it was struck down. The Corporation filed the appeal against the portion that
was struck down and the respondents filed the cross appeal against the findings
that went against them.
Sri Harish
Salve, learned Senior counsel for LIC contended that on acceptance of the
proposals by the insurer in Life Insurance business, the policy holders gets
rights in the policy. As the proposals of respondents 2 to 5 were rejected as
not being in conformity with the conditions prescribed in Table 58, they cannot
enforce any right flowing from Table 58 under Article 226. They cannot use Judicial
process to create rights in their favour unless a binding contract emerged by
acceptance of the proposal of insurance and acted upon. No rights would flow to
any party to the proposal to challenge the policy, its terms and plan of
insurance. The writ petition under Article 226 of the constitution is not
maintainable to enforce constitutional obligations. It is next contended that
Life Insurance policies are framed on Actuarial considerations and worked out
as per the needs of the policy to suit the interests of all those interested in
obtaining a particular policy and their viability. The High Court was not
justified in interfering with matters based on economic criteria and commercial
contracts, in particular, after having recorded findings referred to
hereinbefore in favour of the corporation, the High Court committed error of
law in declaring the offending portion of the policy as arbitrary and violative
of Articles 14, 19 and 21 of the Constitution.
The
actuarial principles are the calculations made by actuaries taking into
consideration:
a) present
condition of health and physical build of the life to be insured;
b) personal
and family history, occupation, likelihood of any change in the occupation etc.
The premium to be charged in a particular policy is calculated by actuarial
method. These conditions have been imposed taking into consideration risk to be
covered to see that the plan is successfully operated. The afore-stated
conditions are necessary to forecast mortality among insured lives within a
relatively narrow margin of error, depending upon general population statistics
based on insured lives. The tables were framed to cover the risk of all classes
of people to suit all the classes. There are several policies like endowment
policy, annuity policy and whole life policy.
These
are again sub-divided into various plans of insurance.
All
policy holders under Table 58 have been trated as a class. Several conditions
in the policy do disclose that they have been formulated to effectuate the
policy under Table 58. Taking into consideration the minimum and maximum age
enumerated therein, all the policy holders under Table 58 are treated as a
class. Restrictions imposed or the terms and conditions contained therein are
reasonable. There is no invidious discrimination meted out to the respondents.
It is open to the policy holders to have term policy converted into endowment
or whole life policy. The policy of denying convetible risk, policy to female
lives before the expiry of two years of the term policy, all eligible persons
are entitled to convert them into whole life policy or endowment policy before
expiry of two years. The premium payable on the term policy is very marginal to
benefit such of those persons at the threshold of their career. In the event of
the said conversion, there is no need for fresh medical report. Since the
policy is commercial contract, the High Court has no power or jurisdiction to
interfere with contractual relations declaring them as invalid and
unconstitutional.
Shri Dhawan,
learned Senior counsel for the respondents resisted these contentions on the
anvil of Article 25 of the Declaration of Human Rights, Article 7 of the
International Covenant on Economic and Social Rights and, in particular, on the
provisions of Part III and the Directive Principles of the Constitution which
assure livelihood. This Court interpreted the word "life" under
Article 21 broadly so as to render them socio-economic justice. Policy under
Table 58 is cheaper. Having issued the policy, the appellant has to formulate
its scheme in such a way that it is not inconsistent with the egalitarian social
order which the Constitution seeks to achieve and the court must be give effect
to them. The interpretation sought to put up by the LIC depletes practical
content of human rights in Part IV.
Initially
females were excluded to have insurance policy. By sustained public pressure,
females were made eligible to have policy including term policy. Age was
extended from 45 to 50 years. Similarly the respondent, though is doing life
insurance business, its policies must be in conformity with the rights in Parts
III and IV of the Constitution. It has no power to impose any unconstitutional
conditions in the contract, no classification much less valid classification
has been made between salaried employees in Government, Semigovernment, organised
sectors or reputed commercial organisations, self-employed or unorganised
sectors. The term insurance policy being cheaper premium helps large segments
of poor and lower middle class persons. Sezhivan Committee on improvement of
Insurance, the LIC recommended popularisation in urban and rural areas policies
under Table
58.
The whole life or endowment policies are not easily accessible to the poorer
segments of the society. Only term insurance under Table 58 policy is more
attractive and easily accessible to those segments of the society.
Imposition
of conditions including the one struck down by the High Court are, therefore,
unconstitutional and impermissible.
We
have given our anxious and careful consideration to the respective contentions,
since our answers to the questions involved are bound to have far reaching
effect on the business of life insurance, we have minutely examined all the
questions bearing in mind the larger public interest. Life insurance policies
based on actuarial Tables and the Policy Holders' needs suited to their
requirements.
It
appears that LIC has, in assessing the risk, taken into consideration the
factors: (a) present condition of health and physical build of the person whose
life has to be insured; (b) his/her personal history i.e., record of illness
suffered in the past by the person whose life has to be insured, risks to be
covered and the person's habits in general; (c) family history, i.e. record of
health and longevity of members of the family of the person to be insured; (d)
occupation and environment of the person whose life has to be insured; and (e)
the likelihood of any change in the occupation of the person whose life has to
be insured, calculated to increase the risk of his/her life.
Based
thereon, the amount of premium would be charged depending upon whether a
particular policy is a term insurance or an endowment or whole life policy etc.
based on actuarial method. The terms and conditions subject to which the risk
is to be covered, undoubtedly, would play a vital role in deciding the amount
of premium payable and the conditions on which the policy is to be issued. In
that behalf, it would be necessary to foresee mortality among insured lives
within a relatively narrow margin of error.
The insurer,
therefore would be entitled to devise its plans, relative terms and conditions,
its advantages and other relevant factors. Therefore, the insurer would be
entitled to specify eligibility criteria in various plans of life insurance.
Each policy differ in its contents and conditions, the degree of risk, the
amount of premium payable in that behalf and also mortality rate.
Sezhivan
Committee Report after its elaborate study of the working of the LIC on
insurance recommended in the year 1980 for improvement on several factors of
the working system. It had recommended to make available policies to wider
sections of the people. It analysed diverse life insurance policies in para
13.1(i) and concluded that the cost of providing life insurance through
individual life insurance policies is high and beyond the means of a large
section of the population both in urban and rural areas;
(ii) in
pursuance of one of its basic objectives, namely, mobilisation of savings
through life insurance, the LIC has been concentrating its efforts mainly on
upper strata and employed sections of the population which has a regular income
and saving potential. The obligatory linking of life insurance to savings
inherent in the conventional individual assurance plans and the LIC's
concentration on this type of business together, had the effect of denying life
insurance cover to the vast section of the people who do not have regular
income and whose savings potential is low;
(iii) as
a result of the above, only about 10% of the insurable male lives in the
country have been provided cover against death.
That
too on the salary earning classes and persons in the higher income groups who
take out LIC mainly because of the tax relief available. The coverage of
persons in rural areas and of those employed in the unorganised sector in the
urban areas in meagre; (vi) Life insurance in India can still be a viable savings medium, as it is in U.K., provided the LIC is enabled to improve
substantially the yield on its investment and to control effectively its
expenses of management. In para 13.18, the report further states that
"there is one other plan which the Committee feels the LIC ought to
introduce and that is a level premium term insurance plan.
The
Committee has noted that the Committee of Actuaries had recommended introduction
of such a plan...............
Therefore,
the term insurance policy introduced, though based on calculations of actuarial
consideration, was intended to cover not only the elite and employed in
government, semi-government and reputed commercial establishments but also need
to cover wider public, self employed or those working in unorganised sectors.
The term insurance policy under table 58 is beneficial to all sections and
restricted to lives in specified area alone.
The
original clause in Table 58 reads thus:- "The rates of premium herein
apply to male lives who, on the basis of the medical examiner's report,
personal and family history etc. are considered by the Corporation as first
class lives.
Persons
over 45 years nearer birthday at entry and those following hazardous occupation
including persons in the Armed Forces will not be eligible for insurances under
this plan. Proposals for policies under this scheme will be entertained only
from persons in Government or quasi-government or the service of reputed
commercial firms The medical examination of the proposer will be arranged only
after the proposal is first submitted to the Divisional Office of the
Corporation and its approval to proceedings with medical examination is
obtained. The cost of the medical examination will have to be borne by the proposer.
Minimum
sum assured The minimum amount for which policy will be issued under this plan
is Rs.5,000/-.
Term
of Assurance Policy under this plan will be issued for a term of 5, 6 and 7
years only." During the course of the litigation, as stated earlier, by
public pressure, (i) the appellant amended the clause and deleted
"female" from disabled persons; (ii) increased the age from 45 years
to 50 years; (iii) incorporated the term of five years to proposal in the age
group of 46 to 50 years; and (iv) to furnish details of leave taken during the
preceding three years.
During
the course of the arguments the appellants furnished the comparative evolution
of convertible term insurance, endowment with profits and endowment without
profits, while life policy from which the following picture would emerge:-
"PREMIUM PER THOUSAND PER YEAR FOR PROPONENT AGED 20 YEARS -------- ---
-------- --- ---- --- --------- ---- -- ------ TABLE PREMIUM PAYING TERM PER 1000
YEAR ------ ------- ------ ---- --- ---- ----- 5 YEARS 6 YEARS 7 YEARS - -----
- ----- - ----- 58 Rs.4.80 Rs.4.70 Rs.4.65 (Convertible Term Assurance) 14
Rs.217.15 Rs.179.40 Rs.152.65 (Endowment with profit) 11 Rs.188.90 Rs.152.00
Rs.126.00 (Endowment without profit)" The premium payable to the term
insurance at the age of 20, 25, 30, 35, 40, 45 years is as disclosed in the
Table given by the appellants thus:- SPECIFIED TERM --------- ----- Age nearer
5 years 6 years 7 years Birthday (In rupees and paise) ----------
--------------------------- 20 4.80 4.70 4.65 25 4.95 4.90 4.90 30 5.50 5.50 5.50
35 6.50 6.55 6.65 40 8.70 8.90 9.10 45 12.45 -- -- 50 18.45 -- --
------------------------------------------------------------ The term insurance
policy under Table 58, therefore, appears to be the cheapest and most
accessible policy which a large number of people in the country both in rural
and in urban sectors can afford to take for the reason that the premium is low
and within affordable limit. The policy is for a short term of 5 to 7 years.
There is no return for the insured at the end of the policy. In the event of
death of the insured, it purely provides insurance cover to the family as
social security to support the dependents.
Pursuant
to the recommendation made by Sczhiyan Committee, the term insurance policy was
brought into vogue. In fact, this policy appears to be very popular even in the
United States of America as per the material furnished beofore us which would
indicate that during the year 1985 to 1989 among all the policies, the term
insurance policy was the most popular one, which covered large number of lives.
It is
true that convertible whole life insurance was intended to meet the needs of a
young person who is on the threshold of his career to provide maximum insurance
with a minimum cost and at the same time intended to offer a flexible contract
which can be altered into an endowment insurance without any need to pay premia
after the age of 70 and without further medical examination. Convertible term
insurance is designed to meet the needs of those who are initially unable to
pay premium required for whole life or endowment insurance policy and hope to
be able to pay for such a policy in the near future. Fixed term convertible is
permissible except in the last two years without any further medical
examination. As stated earlier at the end of the term, the assured will not get
anything, if he survives. On his death, the nominee or the dependents will get
the assured amount but it could be seen the capacity to pay the premium would
also be a relevant factor.
The
premium for Rs.1000/- under the policy as per the Table furnished would
indicate as under:- TABLE : SHOWING DIFFERENCES IN PREMIA (Premia per 1000) Age
Convertible Life Whole Life Term Policy 5 years 6 years 7 years 15 Rs.10.80
10.75 -- -- -- 20 Rs.11.65 11.65 4.80 4.70 4.65 25 Rs.13.05 12.95 4.95 4.90 4.90
35 Rs.18.25 17.95 6.50 6.55 6.65 It will thus be seen that the difference in premia
is quite considerable. It should be noted that the rate is per Rs.1000. Thus,
where the policy is Rs.50,000 the difference will be as shown below:
The Premia
for Rs.50,000/- is as under :
Age
Policy Convertible Whole Term Police Life Life 5 yrs 6 yrs 7 yrs 35 Rs.50,000
Rs.912.5 897.5 325 327.5 332.5 It will, thus, be clear that the Term Policy is
a demonstrably cheap and efficacious short term policy and help those badly in
need of it.
From
this material matrix, the question emerges whether the appellant is justified
in law in restricting the term policy only to the specified class, namely,
salaried persons in Government, quasi-Government or reputed commercial firms.
The
Preamble, the arch of the Constitution, assures socio- economic justice to all
the Indian citizens in matters of equality of status and of opportunity with
assurance to dignity of the individual. Article 14 provides equality before law
and its equal protection. Article 19 assures freedoms with right to residence
and settlement in any part of the country and Article 21 by receiving expansive
interpretation of right to life extends to right to livelihood. Article 38 in
the Chapter of Directive Principles enjoins the State to promote the welfare of
the people by securing and protecting effective social order in which
socio-economic justice shall inform all the institutions of the national life.
It enjoins to eliminate inequality in status, to provide facilities and
opportunities among the individuals and groups of the people living in any part
of the country and engaged in any avocation. Article 39 assures to secure the
right to livelihood, health and strength of workers, men and women and the
children of tender age. The material resources of the community are required to
be so distributed as best to subserve the common good. Social security has been
assured under Article 41 and Article 47 imposes a positive duty on the State to
raise the standard of living and to improve public health.
Article
25 of the Universal Declaration of Human Rights envisages that everyone has the
right to standard of living adequate for the health and well-being of himself
and of his family including food, clothing, housing and medical care and
necessary social services and the right to security in the event of
unemployment sickness, disability, widowhood, old age or other lack of
livelihood in the circumstances beyond his control. Article 7 of the
International Covenant on Economic Rights equally assures right to everyone to
the enjoyment of just and favourable conditions of work which ensures not only
adequate remuneration and fair wages but also decent living to the workers for
themselves and their families in accordance with the provisions of the
Covenant.
Covenant
on Right to development enjoins the State to provide facilities and
opportunities to make rights a reality and truism, so as to make these rights
meaningful.
A
Constitution Bench of this Court in D.S. Nakara v. Union of India, 1983 (2) SCR
165 at p.185, held that pension ensures freedom from undeserved want. The basic
framework of the Constitution is to provide a decent standard of living to the
working people and especially provides security from cradle to grave. Every
State action whenever taken must be directed and be so interpreted as to take
society one step towards the goal of establishing a socialist welfare society.
While examining the constitutional validity of legislative/administrative
action, the touchstone of the Directive Principels of the State policy in the
light of the Preamble provides yardstick to hold one way or the other. In Olga Tellis
v. Bombay Municipal Corporation, 1985 Supp(2) SCR 51, another Constitution
Bench of this Court held that the right to life inculdes right to livelihood
because no person can live without the means of living i.e. means of
livelihood. If the right to livelihood is not treated as part of constitutional
right to life, the easiest way of depriving a person of his right to life would
be to deprive him of his means of livelihood to the point of abrogation.
Such
deprivation would not only denude the life of its effective content and
meaningfulness but it would make life impossible to live.
Interpreting
Article 19(e) vis-a-vis Article 25(2) of the Universal Declaration of the Human
Right and Article 7 of the International Convention of Economic, Social and
Cultural Rights, one of us (K. Ramaswamy, J.) in C.E.S.C. Ltd. v. Subhash
Chandra Bose, (1992)1 SCC 441 at p.462 in para 30, held that the right to
social justice is a fundamental right. Right to livelihood springs from the
right to life guaranteed under Article 21. The health and strength of a worker
is an integral facet of right to life.
Right
to human dignity, development of personality, social protection, right to rest
and leisure are fundamental human rights to a common man. Right to life and
dignity of person and status without means are cosmetic rights. Socio-economic
rights are, therefore, basic aspirators for meaningful right to life. Right to
social security and protection of the family are integral part of the right to
life. Right to social and economic justice is a fundamental right". In
paragraph 32, it was further held that "right to medical care and health
for protection against sickness are fundamental rights to the workmen". On
this aspect, there was no disagreement by the majority members. In Consumer Education
& Research Centre v. Union of India. Jt 1995(1) SC 637, it was unanimously held by a bench of
three Judges that right to health to a worker is an integral facet of
meaningful right to life and have not only a meaningful existance but also
robust health and vigour without which worker would lead life of misery. Lack
of health denudes his livelihood. Compelling economic necessity to work in an
industry exposed to health hazards due to indigence to bread-winning to himself
and his dependents, should not be at the cost of the health and vigour of the
workman.
Facilities
and opportunities, as enjoined in Article 38, should be provided to protect the
health of the workman.
Right
to human dignity, development of personality, social protection are fundamental
rights to the workmen. Medical facilities to protect the health of the workers
are fundamental rights to workmen. It was, therefore, held that "the right
to health, medical aid and to protect the health and the vigour of a worker
while in service or post retirement is a fundamental right under Article 21
read with Articles 39(e), 41, 43, 48-A of the Constitution of India and
fundamental human right to make the life of workmen meaningful and purposeful
with dignity of persons". In Regional Director, ESI Corporation v. Francis
De Costa, 1993 supp (4) SCC 100 at 105, the same view was stated. Security
against sickness and disablement is fundamental right under Article 25 of the
Universal Declaration of Human Rights and Article 7(b) of international Convention
of Economic, Social and Cultural Rights and under Articles 39(e), 38 and 21 of
the Constitution of India. Employees State Insurance Act seeks to provide seccour
to maintain health of an injured workman and the interpretation should be so
given as to give effect to right to medical benefit which is a fundamental
right to the workman. In Murlidhar Dayandeo Kesekar v. Vishwanath Pandu Barde
(C.A.No.952/77) on February
22, 1995, this Court
held that right to economic empowerment to the poor, disadvantaged tribes and
depressed and oppressed Dalits, is a fundamental right to make their right to
life and dignity of person meaningful and worth living. It was also held that
socio-economic democracy is sine qua non to make political democracy, a truly
participatory democracy and a truism for unity and integrity of Bharat.
It
would thus be well settled law that the Preamble Chapter of Fundamental Rights
and Directive Principles accord right to livelihood as a meaningful life,
social security and disablement benefits are integral schemes of socio-economic
justice to the people in particular to the middle class and lower middle class
and all offendable people. Life insurance coverage is against disablement or in
the event of death of the insured economic support for the dependents, social
security to livelihood to the insured or the dependents. The appropriate life
insurance policy within the paying capacity and means of the insured to pay premia
is one of thesocial security measures envisaged under the Constitution to make
right to life meaningful, worth living and right to livelihood a means for
sustenance.
The
question, therefore, is whether the appellant is free to incorporate as a part
of its business principles, any term of its choice. It is true that the appellant
is entitled to accept insurance policy from a person possessed of health with
first class life and before acceptance of the policy the insured is required to
undergo medical examination as per policy at his expense to satisfy his
condition of health. The question is whether the term policy needs to be
restricted only to the employees of Govt., quasi-government or reputed
commercial firms and whether such condition is just, fair and reasonable or
based on reasonable classification consistent with Articles 14 and 21 of the
Constitution. The contention of the appellants is that life insurance policy
being a contract of insurance becomes a binding contract on appellants'
acceptance. Until a contract is entered into, the proposed insured does not
acquire any right in insurance policy. The terms of the contract under Table 58
cannot be declared ultra vires before a concluded contract emerged. Contract of
insurance operates in the arena of contractual relations. Refusal to enter into
contract does not infringe any fundamental right or a legal right nor the
respondents are entitled to compel the appellants to enter into favourable
relations when they did not fulfill the essential terms of the proposal.
Therefore,
writ petition is not maintainable to enforce such rights in embryo nor they be
entitled to declaration in their favour.
It is
true that life insurance business as defined under s.2(11) of the Insurance
Act, 1938, is business of effecting contracts of insurance upon human life,
including any contract whereby the payment of money is assured on death (except
death by accident only) or the happening of any contingency dependent on human
life, and any contract which subject to payment of premiums for a term
dependent on human life including those enumerated in clause (a) to (c)
thereof. Thereby, the contract of insurance is hedged with bilateral agreement
on human life upon payment of premia subject to the convenants contained thereunder.
But as stated earlier, is the insurer entitled to impose unconstitutional
conditions including that which denied the right of entering into the contract,
limiting only to a class of persons under a particular policy? We make it clear
at this juncture that the insurer is free to evolve a policy based on business
principles and conditions before floating the policy to the general public
offering on insurance of the life of the insured but as seen earlier, the
insurance being a social security measure, it should be consistent with the
constitutional animation and conscience of socioeconomic justice adumbrated in
the Constitution as elucidated hereinbefore.
In M/s
Erusian Equipment & Chemicals Ltd. v. State of West Bengal. 1975(1) SCC 70 at 75 in para 17,
this Court held that neither the petitioner nor the respondent has any right to
enter into a contract but they are entitled to equal treatment with others who
offer tender or quotations for the purchase of the goods services etc.. This
privilege arises it is the Government which trading with the public and the
democratic form of Government demands equality and absence of arbitrariness and
discrimination in such transactions. Privilege is a form of liberty as opposed
to a duty. When public element is involved in the activities of the Government,
then there should be fairness and equality.
If the
State does enter into a contract, it must do so fairly without discrimination
and without unfair procedure.
Exclusion
of a member of the public from dealing, prevents him from entering into lawful
contractual relations and discriminates him in favour of other people. Though
the State is entitled to impose reasonable conditions but arbitrary conditions
prevents entering into contractual relations with the State. The individual is
entitled to fair and equal treatment with others. A duty to act fairly can be
interpreted as meaning a duty to observe certain aspects of rules of natural
justice. The legitimate expectation cannot be denied without fair procedure. In
that case black listing, without an opportunity was held to be an unfair
procedure offending Article 14.
In Saghir
Ahmad v. State of U.P., 1955(1) SCR 707, the Constitution Bench at the earliest
buried fathom deep that the State is free to carry on trade or business in the
same position as a private trader. In A. Sanjeevi Naidu v. State of Madras,
1970(3) SCR 505, another Constitution Bench held that the acts of the authorised
officers are the acts of the State itself and not as the delegates of the
Government. In Ramana Dayaram Shetty v. International Airport Authority of
India, 1979(3) SCR 1014, another Constitution Bench held that in a welfare
State in regulating and dispensing special services including contracts, the
citizen derives rights or privileges by entering into favourable relations with
the Government. The Government, therefore, cannot anchor its role as a private
person. The exercise of the power or discrimination to award contract etc. must
be structured by rational, relevant and non-discriminatory standards or norms.
In Kasturi Lal Lakshmi Reddy v. State of J & K, 1980(3) SCR 1338, it was
further held that every activity of the government has a public element in it
and it must, therefore, be informed with reason guided by public interest. It
cannot act in a manner which would benefit a private party at the cost of the
State. In M.C. Mehta v.
Union
of India, (1987)1 SCC 395, another Constitution Bench held that it is dangerous
to exonerate corporations from the need to have constitutional conscience which
makes governmental agencies what their mien amenable to constituional limitations,
the Court must adopt such standards "as against the alternative of
permitting them to flourish as an imperium in imperio". It was further
held that law has to grow in order to satisfy the needs of the fast changing
society and keep abreast with the economic developments taking place in the
country. As new situations arise the law has to be evolved in order to meet the
challenge of such new situations. Law cannot afford to remain static. The Court
has to evolve new principles and lay down new norms which arise in a highly industrialised
economy. Therefore, when new changes are thrown open, the law must grow as a
social engineering to meet the challenges and every endeavour should be made to
cope with the contemporary demands to meet socio-economic challenges under rule
of law and have to be met either by discarding the old and unsuitable or
adjusting legal system to the changing socio-economic scenario. Banjaman Cardozo
has stated in his "Judicial Process" at p.168, that "the great
tides and currents which engulf the rest of men do not turn aside in their
course and pass the Judges idle by".
Every
action of the public authority or the person acting in public interest or its
acts give rise to public element, should be guided by public interest. It is the
exercise of the public power or action hedged with public element becomes open
to challenge. If it is shown that the exercise of the power is arbitrary unjust
and unfair, it should be no answer for the State its instrumentality, public
authority or person whose acts have the insignia of public element to say that
their actions are in the field of private law and they are free to prescribe
any conditions or limitations in their actions as private citizens, simplicitor,
do in the field of private law. Its actions must be based on some rational and
relevant principles. It must not be guided by irrational or irrelevant
considerations. Every administrative decision must be hedged by reasons. The
Administrative Law by Wade, 5th Ed. at p.513 in Chapter 16, Part IV dealing
with remedies and liabilities, stated thus:- "Until a short time ago
anomalies used to be caused by the fact that the remedies employed in
Administrative Law belong to two different families. There is the family of
ordinary private law remedies such as damages, injunction and declaration and
there is a special family of public law remedies particularly Certiorari,
Prohibition and Mandamus, collectively known as prerogative remedies. Within
each family, the various remedies can be sought separately or together or in
the alternative. But each family had its own distinct procedure".
At
page 514 it was elaborated that "this difficulty was removed in 1977 by
the provision of a comprehensive, "application for judicial review",
under which remedies in both facilities became interchangeable." At page
573 with the heading `Application for Judicial Review' in Chapter 17, it is
stated thus:- "All the remedies mentioned are then made interchangeable by
being made available `as an alternative or in addition' to any of them. In
addition the Court may award damages, if they are claimed at the outset and if
they could have been awarded in an ordinary action." The distinction
between private law and public law remedy is now settled by this Court in LIC
v. Escorts Ltd., 1985 Supp. (3) SCR 909. by a Constitution Bench thus:-
"If the action of the State is related to contractual obligations arising
out of the Court (contract sic) the Court may not ordinarily examine unless the
action has some public law character attached to it. The Court will examine
actions of State if they pertain to the public law domain and refrain from
examining them if they pertain to the private law field. The difficulty will
lie in demarcating the frontier between the public law domain and the private
law field. This is impossible to draw the line with precession and we do not
want to attempt it. The question must be decided in each case with reference to
the particular action, the activity in which the State or the instrumentality
of the State is engaged when performing the action, the public law or private
law character of the action and a host of other relevant circumstances."
In Dwarkadas Marfatia & Sons v. Board of Trustees of the Port of Bombay,
1989(2) SCR 751, it was held that the Corporation must act in accordance with
certain constitutional conscience and whether they have so acted must be
discernible from the conduct of such Corporations.
Every
activity of public authority must be informed by reasons and guided by the
public interest. All exercise of discretion or power by public authority must
be judged by that standard. In that case when the building owned by the port
trust was exempted from the Rent Act, on terminating the tenancy for
development when possession was sought to be taken, it was challenged under
Article 226 that the action of the port trust was arbitrary and no public
interest would be served by terminating the tenancy. In that context, this
Court held that even in contractual relations the Court cannot ignore that the public
authority must have constitutional conscience so that any interpretation put up
must be to avoid arbitrary action, lest the authority would be permitted to
flourish as imperium a imperia. Whatever be the activity of the public
authority, it must meet the test of Article 14 and judicial review strikes an
arbitrary action.
In Mahabir
Auto Stores v. India Oil Corporation, AIR 1990 SC 1031, it was held that the
State when acting in its executive power, enters into contractual relations
with the individual, Article 14 would be applicable to the exercise of the
power. The action of the State or its instrumentality can be checked under
Article 14. Their action must be subject to rule of law. If the governmental
action even in the matter of entering or not entering into contracts, fails to
satisfy the test of reasonableness, the same would be unreasonable. Rule of
reason and rule against arbitrariness and discrimination, rules of fair play,
natural justice are part of the rule of law applicable in situation or action
by State/instrumentality in dealing with citizens. Even though the rights of
the citizens, therefore, are in the nature of contractual rights, the manner,
the method and motive of a decision of entering or not entering into a
contract, are subject to judicial review on the touchstone of relevance and
reasonableness, fair play and natural justice, equality and non-discrimination.
It is well settled that there can be "malice in law". It was also
further held that whatever be the act of the public authority in such monopoly
or semi- monopoly, it must be subject to rule of law and must be supported by
reasons and it should meet the test of Article 14.
This
Court has rejected the contention of an instrumentality or the State that its
action is in the private law field and would be immuned from satisfying the
tests laid under Article 14. The dichotomy between public law and private law
rights and remedies, though may not be obliterated by any straight jacket
formula, it would depend upon the factual matrix. The adjudication of the
dispute arising out of a contract would, therefore, depend upon facts and
circumstances in a given case. The distinction between public law remedy and
private law field cannot be demarcated with precision. Each case will be examined
on its facts and circumstances to find out the nature of the activity, scope
and nature of the controversy. The distinction between public law and private
law remedy has now become too thin and practicably obliterated.
In the
sphere of contractual relations the State, its instrumentality, public
authorities or those whose acts bear insignia of public element, action to
public duty or obligation are enjoined to act in a manner i.e. fair, just and
equitable, after taking objectively all the relevant options into consideration
and in a manner that is reasonable, relevant and germane to effectuate the
purpose for public good and in general public interest and it must not take any
irrelevant or irrational factors into consideration or arbitrary in its decision.
Duty to act fairly is part of fair procedure envisaged under Articles 14 and
21. Every activity of the public authority or those under public duty or
obligation must be informed by reason and guided by the public interest.
In Kumari
Shrilekha Vidyarthi v. State of U.P., (1991)1 SCC 212, this Court in paragraph
22 pointed out that the private parties are concerned only with their personal
interest but the public authority are expected to act for public good and in
public interest. The impact of every action is also on public interest. It
imposes public law obligation and impress with that character, the contracts
made by the State or its instrumentality. "It is a different matter that
the scope of judicial review in respect of disputes falling within the domain
of contractual obligations may be more limited and in doubtful cases the
parties may be relegated to the adjudication of their rights by resort to
remedies provided for adjudication of purely contractual disputes. However, to
the extent, challenge is made on the ground of violation of Article 14 by
alleging that the impugned act is arbitrary, unfair or unreasonable, the fact
that the dispute also falls within the domain of contractual obligations would
not relieve the State of its obligation to comply with the basic requirements
of Article
14. To
this extent, the obligation is of a public character invariably in every case
irrespective of there being any other right or obligation in addition thereto.
An additional contractual obligation cannot divest the claimant of the
guarantee under Article 14 of nonarbitrariness at the hands of the State in any
of its actions". In Food Corporation of India v. M/s Kamdhenu Cattle Feed
Industries, (1993)1 SCC 71 at p. 76 in para 8, this Court held that "the
mere reasonable or legitimate expectation of a citizen may not by itself be a
distinct enforceable right, but failure to consider and give due weight to it
may render the decision arbitrary, and this is how the requirement of due
consideration of a legitimate expectation forms part of the principle of
non-arbitrariness, a necessary concomitant of the rule of law. Every legitimate
expectation is a relevant factor requiring due consideration in a fair
decision-making process". In Sterling Computers Ltd. v. M & N Publications
Ltd.,(1993)1 SCC 445 at page 464 para 28, it was held that even in commercial
contracts where there is a public element, it is necessary that relevant
considerations are taken into account and the irrelevant consideration
discarded. In Union of India v. M/s Graphic Industries Co., (1994)5 SCC 398,
this Court held that even in contractual matters public authorities have to act
fairly; and if they fail to do so approach under Article 226 would always be
permissible because that would amount to violation of Article 14 of the
Constitution. The ratio in General Assurance Society Ltd. v. Chandumull Jain,
1966(3) SCR 500, relied on by the appellants that tests laid therein to
construe the terms of insurance contracts bears no relevance to determine the
constitutional conscience of the appellant in fixing the terms and conditions
in Table 58 and of their justness and fairness on the touch stone of public
element.
The arms
of the High Court is not shackled with technical rules or of procedure. The
actions of the State, its instrumentality, any public authority or person whose
actions bear insignia of public law element or public character are amendable
to judicial review and the validity of such an action would be tasted on the
anvil of Article
14.
While exercising the power under Article 226 the Court would be circumspect to
adjudicate the disputes arising out of the contract depending on the facts and
circumstances in a given case. The distinction between the public law remedy
and private law field cannot be demarcated with precision.
Each
case has to be examined on its own facts and circumstances to find out the
nature of the activity or scope and nature of the controversy. The distinction
between public law and private law remedy is now narrowed down. The actions of
the appellants bears public character with an imprint of public interest
element in their offers with terms and conditions mentioned in the appropriate
table inviting the public to enter into contract of life insurance. It is not a
pure and simple private law dispute without any insignia of public element.
Therefore, we have no hesitation to hold that the writ petition is maintainable
to test the validity of the conditions laid in Table 58 term policy and the
party need not be relegated to a civil action.
The
contention of the appellants is that the offending clause is a valid
classification. The salaried group of lives from the government,
semi-government or reputed commercial institutions from a class with a view to
identify the health conditions, the policy was applied to that class of lives.
No mandamus would be issued to declare the classification as unconstitutional
when it bears reasonable nexus to the object and there is intelligible
differentia between the salaried lives and the rest. The High Court, therefore,
was wrong in declaring the offending clause as arbitrary violating Article 14.
It is true that the appellant is entitled to issue the policy applicable to a
particular group or class of lives entitled to avail contract of insurance with
the appellant but a class or a group does mean that the classification meets
the demand of equality, fairness and justness. The doctrine of classification
is only a subsidiary rule evolved by the courts to give practical contend to
the doctrine of equality, over-emphasis on the doctrine of classification or
anxious or sustained attempt to discover some basis for classification may
gradually and imperceptly erode the profound potency of the glorious content of
equality enshrined in Article 14 of the Constitution. The over- emphasis on
classification would inevitably would result in substitution of the doctrine of
classification to the doctrine of equality and the Preamble of the Constitution
which is an integral part and scheme of the Constitution.
Menaka
Gandhi ratio extricated it from this moribund and put its elasticity for
egalitarian path finder. Lest, the classification would deny equality to the
larger segments of the society. The classification based on employment in
government, semi-government and reputed commercial firms has the insidious and
inevitable effect of excluding lives in vast rural and urban areas engaged in unorganised
or self- employed sectors to have life insurance offending Article 14 of the
Constitution and socio-economic justice.
It is
true that the appellants have to successfully operate the life insurance plan
need to forecast mortality among the insured lives within a relatively narrow
margin of error and are entitled to scrutinize the medical history of the lives
to be covered under the appropriate policy including Table 58. It is seen that
the term policy under Table 58 is the cheapest and accessible policy to the
people and that the life of the policy is 5 to 7 years and the insurable lives
are upto 50 years. Before acceptance of the policy the appellants also have the
medical report submitted by the proposed policy holder at his expense. Though
leave record of the government employees or those working in semi- government
or reputed commercial firms has been introduced at a later stage, it may not by
itself be a fool proof of the good health of the concerned proposed policy
holders. It would appear that the appellants have adopted a soft and easy
course. The class of the employees sought to be covered under policy would, by
and large generally be those already insured under whole life policy or
endowment policy.
Extending
the Table 58 policy again to 10% of such a class from total population may not
always be more successful apart, extending the benefit to other people who can
afford to take the policy and continue to pay the premium would ensure social
security. It would percolate not only to the salaried class to whom other
policies stood extended but also larger segments not only in urban areas and
also in the rural areas would reap the benefit. Though assured employment
sources of income may be easily tapable source, policy being volitious it may
not be difficult for the people in other private sector, unorganised sector
etc, or people in self-employed sector to take policy under Table
58. Sezhivan
Committee itself had recommended and it would be obvious that pursuant thereto
Table 58 also was introduced into the market to benefit those lives in rural
areas or in the unorganised sectors. Confining the policy under Table 58 to
already covered salaried sections would, therefore, be unreasonable and
arbitrary and would deprive large segments in the rural areas or unorganised or
self- employed would be unjust and irrational and unfair.
An
unfair and untenable or irrational clause in a contract is also unjust amenable
to judicial review. In common law a party was relieved from such contract. In
Gillespie Brothers & Co. Ltd. v. Roy Bowles Transport Ltd., 1973 (1) Q.B.
400, Lord Denning for the first time construing the indemnity clause in a
contract stated that the court to permit party to enforce his unreasonable
clause, even when it is so unreasonable, or applied so unreasoably, would be
unconscionable, it was stated :
"When
it gets to this point, I would say, as I said many years ago.
There
is the vigilance of the common law which while allowing freedom of contract,
watches to see that it is not abused. It will not allow a party to exempt
himself from his liability at common law when it would be quite unconscionable
for him to do so". In Lloyds Bank Ltd. v. Bundy, 1973(3) All E.R. 757,
inequality of the bargaining power was enunciated by Lord Denning M.R. and held
that one who enters into a contract on terms which are very unfair or transfers
property for a consideration which is grossly inadequate, when his bargaining
power is grievously impaired by reason of his own needs or desires, or by his
own ignorance or infirmity........ the one who stipulates for an unfair
advantage may be moved solely by his own self- interest, unconscious of the
distress he is bringing to the other........ One who is in extreme need may
knowingly consent to a most improvident bargain, solely to relieve the strains
in which he finds himself. It would not be meant to suggest that every
transaction is saved by independent advice. But the absence of it may be fatal.
In A. Schroeder Music Publishing Co. Ltd. V. Macaulay (Formerly Instone),
1974(1) W..L.R.
1308,
House of Lords considered and held that a party to a contract would be relieved
from the terms of the contract.
In the
course of his speech learned Lord Deplock outlined the theory of
unreasonableness or unfaairness of the bargain to relieve a party from the
contract when the relative bargaining power of the parties was not equal. In
that case the song writer had contracted with the publisher the terms more
onerous to him and favourable to the publisher. The song writer was relieved
from the bargain of the contract on the theory of restraint trade opposed to
public policy. The distinction was made even in respect of standard forms of
contract emphasising that when the parties in a commercial transaction having
equal bargaining power have adopted the standard form of contract, it was
intended to be binding on the parties. The court would not relieve the party
from such a contract but the contracts are between the parties to it, or
approved by any organisation representing the interests of the weaker party,
they have been directed by that party whose bargaining power, either exercised
alone or in conjunction with others providing similar goods or services,
enables him to say: "If you want these goods or services at all, these are
the only terms on which they are obtainable. Take it or leave it." In Levison
and Anr. v. Steam Carpet Co. Ltd., 1978 (1) Q.B. 69, Lord Denning M.R.
reiterated the unreasonable clause in the contract would be applied to the
standard from of contract where there was inequality of bargaining power. In
Photo Production Ltd. v. Securicor Transport Ltd, 1980 A.C. 827, considering
the Unfair Contract Terms Act, 1977, Lord Wilberforce during the course of his
speech emphasised the unequal bargaining power as an invalidating factor upheld
the contract in that case since it was commercial bargain between two competent
party to enter into a contract on equal bargaining power. Lord Deplock also
reiterated his earlier view. Lord Scarman agreeing with Lord Wilberforce
described that a commercial dispute between the parties well able to look after
themselves, in such a situation what the parties have agreed expressly or
impliedly is what matters; and the duty of the courts is to construe their
contract according to their tenor. It was held that in that case that parties
have equal bargaining power and intervention of the court to relieve the party
from the contract was not called for. The Civil code of Germany in s.138(2)
thereof release a person from the contract when the party has no equal
bargaining power.
In
Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, 1986 (2)
SCR 278 at 369-70, Madan, J. speaking for a bench of two judges considered the
development of law, held that an instrumentality of the State cannot impose
unconstitutional conditions in statutory rules vis-a-vis its employee to
terminate the service of a permanent employee in terms of the rules and held
thus:
"Should
then our courts not advance with the times? Should they still continue to cling
to outmoded concepts and outworn ideologies? Should we not adjust our thinking
caps to match the fashion of the day? Should all jurisprudential development
pass us by, leaving us floundering in the sloughs of nineteenth-century
theories? Should the strong be permitted to push the weak to the wall? Should
they be allowed to ride roughshod over the weak? Should the courts sit back and
watch supinely while the strong trample under 5 foot the rights of the weak? We
have a Constitution for our country. Our judges are bound by their oath to
"uphold the Constitution and the laws". The Constitution was enacted
to secure to all the citizens of this country social and economic justice.
Article 14 of the Constitution guarantees to all persons equality before the
law and the equal protection of the laws. The principle deducible from the
above discussions on this part of the case is in consonance with right and
reason, intended to secure social and economic justice and conforms to the
mandate of the great equality clause in article 14. This principle is that the
courts will not enforce and will, when called upon to do so, strike an unfair
and unreasonable contract, or an unfair and unreasonable clause in a contract,
entered into between parties who are not equal in bargaining power. It is
difficult to give an exhaustive list of all bargains of this type. No court can
visualize the different situations which can arise in the affairs of men. One
can only attempt to give some illustrations. For instance, the above principle
will apply where the inequality of bargaining power is the result of the great
disparity in the economic strength of the contracting parties. It will apply
where the inequality is the result of circumstances, whether of the creation of
the parties or not. It will apply to situations in which the speaker party is
in a position in which he can obtain goods or services or means of livelihood
only upon the terms imposed by the stronger party or go without them. It will
also apply where a man has no choice, or rather no meaningful choice, but to
give his assent to a contract or to sign on the dotted line in a prescribed or
standard form or to accept a set of rules as part of the contract, however
unfair, unreasonable and unconscionable a clause in that contract or form or
rules may be. This principle, however, will not apply where the bargaining
power of contracting parties is equal or almost equal. This principle may not
apply where both parties are businessmen and the contract is a commercial
transaction. In today's complex world of giant corporations with their vast
infra-structural organizations and with the State through its instrumentalities
and agencies entering into almost every branch of industry and commerce, there
can be myriad situations which result in unfair and unreasonable bargains
between parties possessing wholly disproportionate and unequal bargaining
power. These cases can neither be enumerated nor fully illustrated. The court
must judge each case on its own facts and circumstances." It was held that
rule giving power to terminate the services of the permanent employee with one
month's notice or salary in lieu thereof was unconstitutional. The above ratio
was upheld, per majority, in D.T.C. v. D.T.C. Mazdoor congress, 1990 (1) Supp.
SCR 142, one of us K.R.S., J. considered similar contract of service whether
consistent with the Constitution. Approving the statement of law by, Chitti on
Contract, 25th Edn., Vol.I and is Anson's Law of Contract, p.6-7, held that the
freedom of contract must be founded on equality of bargaining power between
contracting parties.
Though
ad idem is assumed, the standard form contract is the rule. The consent or
consensus ad idem of a weaker party be totally absent. He must assent to it in
terms of the dotted line contract or to forgo the goods or services. The
freedom of equal bargaining power is largely an illusion. It was also further
held that in paragraph 22 at p.308 that in today's complex world of giant
corporations with their vast infrastructural organisations and with the State,
through its instrumentalities and agencies has been entering into almost every
branch of industry and commerce and field of service. There can be myriad
situations which result in unfair and unreasonable bargain between parties
possess wholly disproportionate and unequal bargaining power. The court must
judge each case on its own facts and circumstances. While approving the ratio
in Brojonath's case per majority, it was held that Regulation 9 was
unconstitutional.
In
USA, the standard forms of contracts are called 'Contracts of Adhesion".
Assistant Professor Todd D. Rakoff of Harvard University in his Contracts of
Adhesion 1982-83, 95 Harvard Law Review p.1174 surveyed the development of the
standard form of contracts. The social phenomenon and the legal effect of the
standard form of contracts is stated at page 1191 that if the presumption of
enforceability is retained, it threatens to continue generate undesirable
results, thus :
"This
expansion is made manifest by the explanatory comment, which states that reason
to believe that the adherent would not knowingly have singed may be inferred
from the fact that the term is bizarre or oppressive, from the fact that it
eviscerates the non-standard terms explicitly agreed to or from the fact that
it eliminates the dominant purpose of the transaction." At page 1193, it
was further stated that :
"In
the last decade or two, courts analyzing contracts of adhesion have applied the
categories of public interest and superior bargaining power to a substantially
broader set of situations than would fit within the analogous doctrines of
ordinary contract law concerning business affected with a public interest and
transactions tainted by economic duress.
At
page 1215, he further stated:
"The
problems in Leff's and Slawson's analyses are fundamental, and indeed would
seem to inhere in any attempt to justify from a public law perspective the
proposition that form terms have some initial, yet often defensible, validity.
The public law model focuses on the aggregate ordering of standardized
transaction; but once the existence of a "public" issue can be found
in the mere presence of a mass transaction, there appears to be no reason to
let a private party stipulate any form term. Efforts to overcome this problem
by some notion of delegated authority of delegated authority are forced. The
supposed delegation is not based on any actual event, and considering would run
counter to basic public law notions : legitimate governmental bodies should be
disinterested in fact and should also be subject to role-defining rules and
rituals that encourage consideration of the public interest." In Chapter
IV, "Toward the Development of New Doctrine", at page 1249 he states
that there exists :
"Gross
inequality of bargaining power" or the like (in the usual sense of a wide
disparity of economic resources) ought not to be a prerequisite to finding a
contract of adhesion. Put simply, the practice of standard form contracting is
not based on the exercise of pre-existing market power." All that is
necessary is whether the presence of the correlative social role of the
drafting party and adherent is available in equal terms is the test. The
doctrine of unequal bargaining power, the doctrine of unconscionability
"unjust in some sense", etc., were considered and formulated
doctrines for applying the amended 211 Restatement (second) of contracts.
In his
"The Bargain Principle And Its Limits" published in (1982) 95 Har.
L.R. page 441, Prof. M.A. Eisenberg quotes Prof. Arthur Leff from the latter's
article "Unconscionability of the Code" published in 1967) 115 U.Pen.
Law Review 485 at 494 stating that:
"The
purpose of contract law is not simply to create conditions of liability, but
also to respond to the social process of promising." He stated that since
the law does not enforce a promise as such, a legal analysis of bargain of
promise must start with a question whether such promise is enforceable at all.
He
further quoted Aurthor Leff analysing the distinction between procedural and
substantive un conscionability.
Procedural
unconscionability is fault on unfairness in the bargaining process and
substantive unconscionability is fault or unfairness in the bargaining
outcome-that is, unfairness of terms. Quoting S.208 of the Restatement (second)
of Contracts, he stated at page 752 that :
"Over
the last fifteen years, however, there have been strong indications that the
principle of unconscionability authorises a review of elements well beyond
unfair surprise, including, in appropriate cases, fairness of terms." He
further states that :
"Theoretically
it is possible for a contract to be oppressive taken as a whole, even though
there is no weakness in the bargaining process." Professor Eisenberg
propounds the basic test thus:
"Whether
the clause involved are so one-sided as to be unconscionable under the
circumstances existing at the time of making of the contract - The principle is
one of the prevention of oppression and unfair surprise - and not of distrubance
of allocation of the risks because of superior bargaining power." He
further stated at page 799 that :
"Over
the past thirty years a new paradigmatic principle - unconscionability - has
emerged. This principle expalins and justifies the limits that should be placed
upon the bargain principle on the basis of the equality of a bargain." At
page 800, he stated that :
"The
paradigma (unconscionability) must be articulated and extended through the
development of more specific norms to guide the resolution of specific cases,
provide affirmative relief to exploited parties, and channel the discretion of
administrators and legislators. In accomplishing this task, it now appears that
the distinction between procedural and substantive unconscionability, which may
have served a useful purpose at an earlier stage, does not provide much help
once the relatively obvious norms of unconscionability, such as unfair surprise,
have been articulated.
Development
of more specific norms must, instead, proceed by the identification of classes
of cases in which neither fairness nor efficiency supports the application of
the bargain principle - an effort that can be guided in part by the
reconstruction and extension of existing contract doctrines." He concluded
that :
"Increase
in the complexity of some areas of law may be desirable, if it accurately
mirrors the increased complexity of social and economic life.
Placing
limits on the bargain principle involves costs of administration.
Failure
to place such limits, however, involves still greater costs to the system of
justice." M.P. Ellinghaus, Senior Law Lecturer of University of Melbourne
in his "In defence of Unconscionability" (1968_1969) 78 Yale Law
Journal page 757 at 766 stats that - "The relevance of the respective
bargaining positions of the parties to the issue of unconscionability is beyond
dispute, although to ask the draftsman for a comprehensive statement of precise
nature and scope of this relevance." He stated further at page 767 that
bargains "Struck between seeming equals which, on closer investigation,
turn out lopsided because of particular circumstances of the case." He
further expressed the view that the test of a reasonable or average man is to
be applied in preventing exploitation of the under-privileged (vide pages 768
to 774). He ends up his discussion at page 814 that the doctrine of "unconscionability
is a residual category of shifting content and expansible nature." In v. Raghunadha
Rao vs. State of A.P. and others, 1988 (1) Andhra law Times 461, the Andhra pradesh
High Court considered the constitutionality of Clauses 11, 29, 59, 62(b) and
73, the A.P. Standard Specifications on the anvil of Articles 14, 19(1) (g),
the dotted lines contract entered by the petitioner therein under Article 298
and declared clause 73 an arbitration clause of reference to officers that
dealt with the contract as arbitrary and ultravirus of the Constitution.
It is,
therefore, the settled law that if a contract or a clause in a contract is
found unreasonable or unfair or irrational one must look to the relative
bargaining power of the contracting parties. In dotted line contracts there
would be no occasion for a weaker party to bargain or to assume to have equal
bargaining power. He has either to accept or leave the services or goods in
terms of the dotted line contract. His option would be either to accept the
unreasonable or unfair terms or forego the service forever.
With a
view to have the services of the goods, the party enters into a contract with
unreasonable or unfair terms contained therein and he would be left with no
option but to sign the contract.
In
National Textiles Workers' Union etc. V. P.R. Ramkrishnan, 1983 (1) SCR 922,
the constitution bench per majority held that the socio-economic objections set
down in the directive principles of the Constitution should guide and shape the
new corporate philosophy. The management of the private company should show
profound concern for the workers. The socio-economic justice will inform all
the institutions of textiles in the nation to promote fraternity and dignity of
the individuals. In Workmen of Meenakshi Mills Ltd v. Meenakshi Mills Ltd.,
1992 (3) SCC, 336, the right of the management to declare lay off under s.25-N
of the Industrial Disputes Act, 1984 under Article 19(1)(g) of the Constitution
are subject to the mandates containing Arts.38, 39A, 41 and 43. Therefore,
right under Article 19(1)(g) was held to be subject to the directive
principles.
In
Consumer Education & Research Centre v. Union of India, JT 1995 (1) SC 637,
the right of the management in Asbestos industry to carry on its business is
subject to their obligation to protect the health of the workmen and to
preserve pollution free atmosphere and to provide safety and healthy conditions
of the workmen.
The
authorities or a private persons or industry are bound by the directives
contained in part IV, Part III and the Preamble of the Constitution. It would
thus be clear that the right to carry on trade is subject to the directives
containing the Constitution the Universal Declaration of Human Rights, European
Convention of Social Economic and Cultural right and the Convention on Right to
development for socio-economic justice. Social security is a facet of
socio-economic justice to the people and a means to livelihood.
Since
medical report is admittedly a condition precedent for acceptance of the
proposal, it would be open to the appellants to have the medical report from
its recognised or accredited doctors. On its satisfaction of the health
condition of the proposed life to be insured, it would be open to the
appellants to accept or reject, as the case may be, of the proposal. The
question then is whether a clause in the contract is severable by an order of
the court. It is settled law that the arms of the court are long enough to
reach injustice wherever it is found and the court would mould the relief
appropriately to meet the peculiar and complicated requirements of the country
vide Dwarkanath v. Income Tax Officer, Kanpur, 1965 (3) SCR 536 at 540, Andi Mukta
Trust v. V.R. Rudani, 1989(2) SCC 691 at 699-700, Unni Krishnan v. State of
A.P., 1993 (1) SCC 645 at 693-97 and Hochitief Gammon v. State of Orissa, 1975
(2) SCC 649 at 656. In M.J. Sivani and others v. State of Karnataka, S.L.P.
No.11012/1991 etc. dated April 17, 1995, it was contended that since the High
Court held that a part of the notification was inapplicable to the licence for
Video games, it was not severable from the rest of the notification and the
whole notification must be declared to be ultra vires or inapplicable to video
games. Rejecting the contention of the licensees on that ground, this Court
held that the entire order did not become invalid due to inapplicability of a
particular provision or a clause in the general order unless the invalid part
is inextricably interconnected with the valid part. The court would be entitled
to consider whether the rule as a whole or in part is valid or becomes invalid
or inapplicable. On finding that to the extent of the rule was not relevant or
invalid, the court is entitled to set aside or direct to disregard the invalid
or inapplicable part leaving the rest intact and operative. In that case Para
3(2) of the notification for licencing public places or the places of public
resort or amusement for conducting video in gaming house though was held to be
inapplicable to video games the rest of the notification was declared valid.
In Praga
Tools Corpn. v. C.A. Imanual, 1969 (1) SCC 585 at 589, this Court held that
mandamus may be issued to enforce duties and positive obligation of a public
nature even though the persons or the authorities are not public officials or
authorities. The same view was laid in Anadi Mukta v. V.R. Rudani, (1989)2 SCC
691, and Unnikrishnan v. State of A.P.,
(1993)1 SCC 645. In Comptroller & Auditor General of India v. K.S. Jagannathan, 1986 (2) SCR
17 at 36- 40, this Court held that a mandamus would be issued to implement
directive principles when Government have adopted them. They are of public
obligations to give preferential treatment implementing the rule of reservation
under Arts.14 and 16(1) and (4) of the Constitution.
It is
seen that the respondents are not seeking any direction in their favour to call
upon the appellants to enter into a contractual relations of term policy in
Table 58. Their privilege and legitimate expectation to seek acceptance of
policy of life insurance are their freedom.
Instead
they sought for a declaration that the policy confining to only salaried class
from government, semi- government or reputed commercial firms is discriminatory
offending Article 14. Denial thereof to larger segments violates their
constitutional rights. We are of the considered view that they are right. They
are not seeking any mandamus to direct the appellants to enter into contract of
life insurance with them. The rest of the conditions age etc are valid and do
not call for interference. The offending clause extending the benefit only to
the salaried class in Government, semi-Government and reputed firms is
unconstitutional. Subject to compliance with other terms and conditions, the
appellant is free to enforce Table 58 policy with all eligible lives. The
declaration given, therefore, is perfectly valid. The offending part is
severable from the rest of the conditions.
We
have, therefore, no hesitation to hold that in issuing a general life insurance
policy of any type, public element is inherent in prescription of terms and
conditions therein. The appellants or any person or authority in the field of
insurance owe a public duty to evolve their policies subject to such
reasonable, just and fair terms and conditions accessible to all the segments
of the society for insuring the lives of eligible persons. The eligibility
conditions must be conformable to the Preamble, fundamental rights and the
directive principles of the Constitution. The term policy under Table 58 is
declared to be accessible and beneficial to the large segments of the Indian
society. The rates of premium must also be reasonable and accessible.
Accordingly,
we hold that the declaration given by the High Court is not vitiated by any
manifest error of law warranting interference. It may be made clear that with a
view to make the policy viable and easily available to the general public, it
may be open to the appellants to revise the premium in the light of the law
declared in this judgment but it must not be arbitrary, unjust, excessive and
oppressive. Both the appeals are accordingly dismissed but in the circumstances
parties are directed to bear their own costs.
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