http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 24  

PETITIONER: L.I.C. OF INDIA & ANR.

       Vs.

RESPONDENT: CONSUMER EDUCATION & RESEARCH CENTRE & ORS.ETC.

DATE OF JUDGMENT10/05/1995

BENCH: RAMASWAMY, K. BENCH: RAMASWAMY, K. HANSARIA B.L. (J)

CITATION:  1995 AIR 1811            1995 SCC  (5) 482  JT 1995 (4)   366        1995 SCALE  (3)627

ACT:

HEADNOTE:

JUDGMENT:                  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.                           JUDGMENT 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.                             WITH                           JUDGMENT K.RAMASWAMY.J.:      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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 24  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 24  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 24  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 24  

    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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 24  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 24  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 24  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 24  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 24  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 24  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 24  

    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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 24  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 24  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 24  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 24  

    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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 24  

    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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 24  

    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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 24  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 20 of 24  

    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   unconscionability. 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 :

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 21 of 24  

         "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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 22 of 24  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 23 of 24  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 24 of 24  

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.