REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 4113-4115 OF 2008 (Arising out of SLP (C) No. 9876-9878 of 2004)

United India Insurance Company Limited …. Appellant

Versus

Manubhai Dharmasinhbhai Gajera & Ors.          …. Respondents

WITH

CIVIL APPEAL NOS. 4116 OF 2008 (Arising out of SLP (C) No. 10205 of 2004)

New India Assurance Company Limited …. Appellant

Versus

Consumer Education and Research Society & Ors.          …. Respondents

AND

CIVIL APPEAL NOS. 3633 OF 2008 (Arising out of SLP (C) No. 1534 of 2006)

United India Insurance Company Limited …. Appellant

Versus

Mukat Lal Duggal & Anr.           …. Respondents

J U D G M E N T

S,B, SINHA, J.

1. Leave granted in all the matters.  

INTRODUCTION

2. Whether renewal of a mediclaim policy on payment of the amount

of premium would be automatic, is the question involved herein.

BACKGROUND FACTS

3. The  Parliament  enacted  the  General  Insurance  Business

(Nationalisation)  Act  1972  (for  short  1972  Act)  to  provide  for  the

acquisition  and  transfer  of  shares  of  Insurance  Companies  and

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undertakings  of other  insurers  in order to serve better the need of the

economy by securing the development of general insurance business in

the best interest of the community and to ensure that the operation of the

economic system does not  result  in the concentration of wealth to the

common detriment, for the regulation and control of such business and

for other matters connected therewith or incidental thereto.

4. Appellants are the two subsidiary insurance companies of General

Insurance  Corporation  of  India,  carrying  on  the  insurance  business  in

terms  of  the  1972  Act.   The  General  Insurance  Companies  had  a

monopoly over the business of general insurance whereas Life Insurance

Corporation of India  constituted  under the Life  Insurance Corporation

Act,  1956  enjoyed  the  monopoly  in  respect  of  the  business  of  life

insurance.   

5. The business activities of the insurance companies are governed by

the  Insurance  Act,  1938  (for  short  the  1938  Act).   In  terms  of  the

provisions of the said Act, an authority known as Insurance Regulatory

and  Development  Authority  (the  Authority)  was  constituted  by  the

Central Government in exercise of its power conferred upon it by clause

2(c) of Section 114 of the 1938 Act.   

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The  Parliament  also  enacted  the  Insurance  Regulatory  and

Development  Authority  Act,  1999.   By  the  1999  Act  the  Parliament

inserted Section 24A in the 1972 Act directing cessation of the exclusive

privilege  of  the  Corporation  and  the  acquiring  companies  in  relation

thereto.  In exercise of the powers conferred by clause 2(c) of sub-section

(2) of Section 114A of the 1938 Act read with sections 14 and 26 of the

1999  Act,  the  Authority  made  Regulations  known  as  Insurance

Regulatory  and  Development  Authority  (Protection  of  Policyholders’

Interest) Regulations, 2002 (for short the 2002 Regulations).  

FACTUAL MATRIX  

6. We may at the outset, briefly notice the facts involved in one

of the matters

Facts of Civil Appeal @ SLP (C) 1534/2006

7. Respondents  No.1  obtained  the  mediclaim  policy  from  the

appellant  in  April,  1995  and  renewed  annually  upon  payment  of  the

requisite amount of premium.  After  over three years namely, in July,

1998, Respondent No.1 suffered a coronary disease and was admitted in

the  Escorts  Heart  Institute  and  Research  Centre  where  he  underwent

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‘Angioplasty’.   A claim made by him was  paid  by the  appellant.   In

January, 2001 he was once again admitted to the Escorts Heart Institute

and  Research  Centre  and  once  again  underwent  ‘Angioplasty’.   The

amount claimed was duly reimbursed by the appellant to the respondent.

In May, 2002 he was hospitalized in Holy Family Hospital for a minor

operation  and  the  medical  expenses  claimed  to  that  effect  were

reimbursed  by the  appellant.  In  April,  2002  he  underwent  a  bye-pass

surgery.  Respondent No.1 submitted his claim which, however, was not

paid.  

8. On 3rd April,  2003,  the respondent  approached the appellant  for

renewal  of  the  policy  and  issued  a  cheque  towards  payment  of  the

premium for the purpose of renewal of the policy w.e.f. 6th April, 2003,

which was refused on the purported ground of ‘high claim ratio’.  After

serving  notice,  the  said  respondents  filed  a  writ  petition  which  was

allowed by the learned Single Judge of the Delhi High Court by his order

dated 7th January, 2005 directing the appellant  to renew his mediclaim

insurance policy.   

9. An  intra  court  appeal  filed  by  the  appellant  was  dismissed  by

reason of the impugned judgment and order dated 15th July, 2005.  

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We would notice the factual matrix involved in other matters at a

later stage.

PROCEEDINGS

10. Respondents in each of these matters entered into their respective

contracts  of  insurance  with  the  appellant  company.   They  were  not

renewed.   Contending that  the appellant and other  subsidiaries  of the

Corporation  being  ‘State’  within  the  meaning  of  Article  12  of  the

Constitution of India, they must be fair and reasonable and keeping in

view the principles enunciated in the Directive Principle of State policy

as contained in Chapter IV of the Constitution of India, writ  petitions

were filed before the Gujarat High Court.   

11. We need not notice the other details of the said proceedings save

and except that the conclusions recorded by the Division Bench of the

said Gujarat High Court were as under :-

“39. For the foregoing reasons, we conclude as under :

[1] The insured has an option under the existing mediclaim  insurance  policy  to  continue  the cover by payment of renewal premium in time in respect of the sum insured.

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[2]  In  case  of  renewal  without  break  in  the period, the mediclaim insurance policy will be renewed without excluding any disease already covered  under  the  existing  policy which  may have been contracted during the period of the expiring  policy.  Renewal  of  mediclaim insurance  policy  cannot  be  refused  on  the ground that the insured had contracted disease during the period of the expiring policy so far as  the  basic  sum  insured  under  the  existing policy is concerned.

[3]  In  cases  where  the  insured  seeks  an enhancement of the amount of sum insured at the time of  renewal,  the option to  renew will not extend to the amount of such enhancement and  renewal  in  respect  thereof  will  depend upon  the  mutual  consent  of  the  contracting parties.

[4]  Renewal  of  a  medical  claim  insurance policy  cannot  be  refused,  despite  timely payment  of  the  renewal  premium,  on  the ground  that  continuance  of  the  cover  would become more  onerous  or  burdensome for  the insurer due to the insured contracting a covered disease during the period of the existing policy.

[5]  The  insurer  may  refuse  renewal,  even  in cases where the insured has an option to renew the policy on payment of the renewal premium in  time,  on  the  grounds,  such  as, misrepresentation,  fraud  or  non-disclosure  of material facts that existed at the inception of the contract and would have vitiated the insurance of the cover at its inception or non-fulfillment of obligations on the part of the insured or any other ground on which the performance of the

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promise under the contract is dispensed with or excused  under  the  provisions  of  the  Indian Contract  Act  or  any  other  law  or  when  the insurer has stopped doing business.

[6]  The  government  insurance  companies continue  to  be  "State"  within  the  meaning  of Article 12 of the Constitution notwithstanding the entry of private  companies in  the  field  of general  insurance,  ending  their  monopoly  by virtue of insertion of Section 24A in the Act of 1972,  and  they  cannot  arbitrarily  cancel  or refuse to renew an existing mediclaim policy.”

It was directed :

“40.  For  the  foregoing  reasons,  we  find ourselves in agreement with the reasoning and conclusions of the learned Single Judge in the impugned order from which the Letters Patent Appeals  No.1028  of  2003,  No.1003  of  2003 and  1004  of  2003  arise,  and  there  being  no warrant for interference with the same, all  the three  appeals  are,  therefore,  dismissed  with costs.

40.1  For  the  foregoing  reasons,  since  the grounds  given  for  refusing  to  renew  the mediclaim  insurance  policies  of  petitioners Nos. 2 and 3 are arbitrary and also against the contractual terms, the Special Civil Application No.9425 of 2002 is partly allowed, by holding that  the  refusal  of  renewal  of  the  mediclaim insurance policy of the petitioners No.2 and 3

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was arbitrary and illegal, and it is directed that the  respondents  insurance  companies  will renew their respective policies from the date on which they expired, on payment of the renewal premium payable  by them under  the Scheme, without  excluding the  diseases  that  may have been contracted by them during  the  period of their  existing  policies  for  the concerned year. Rule is made absolute accordingly with costs.”

CONTENTIONS

12. Mr. G.E. Vahanvati, learned Solicitor General of India, appearing

on behalf of the appellant, submits :-  

1) The  High  Court  committed  a  serious  error  in  holding  that  the

contract of insurance is no longer in the realm of contract.

2) The  insurance  companies  must  function  having  regard  to

‘commercial expedience’ consideration in view of Section 24A of

the Act.

3) Assuming  that  the  appellant  is  a  ‘State’  within  the  meaning  of

Article 12 of the Constitution of India, the same by itself would

not mean that it cannot enter into a contract with the policy holder

on  its  own  terms,  particularly  when  such  terms  have  been

approved by the Authority.

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13. Mr. Sameer Parekh, and Mr. Sawhney, learned  counsel, appearing

on behalf of the respondents, on the other hand, contends :-

1) The  insurance  companies  having  regard  to  their  obligations  not

only  in  terms  of  the  constitutional  provisions  but  also  the

provisions  of  the   1938  Act,  1972  Act  and  1999  Act;  the

Regulations  framed  thereunder  and  the  guidelines  issued,  are

bound to renew mediclaim policies from time to time on the same

terms and conditions.   

2) Appellants, in view of the decision of this Court, in Biman K. Bose

v.  United India Insurance Co. Ltd. [(2001) 6 SCC 477] are bound

to act fairly and reasonably in the matter of renewal of its policies

and wrongful refusal on their part must be to be an act of mischief

resorted to cause harm to the insured which must be remedied.  

3) Assuming  that  the  insurance  companies  must  address  their

business concern vis-a-vis the competition which they face from

the other companies, the same does not mean that, despite being

the ‘State’ within the meaning of Article 12 of the Constitution of

India,  they  would  refuse  to  carry  out  their  constitutional  and

statutory  obligations,  particularly  in  view  of  the  fact  that  the

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insurance business was acquired by the 1972 Act to subserve the

public purpose.  

4) Renewal of insurance policy, for all intent and purport, should be

held to be automatic, subject of course to tender of the amount of

premium  of  insurance  in  time  inasmuch  as  in  terms  of  the

guidelines issued by the Authority, the policy is to be a continuous

one.   

5) The right to cancel the policy and refusal to renew the same must

be held to be confined only to the exclusionary clauses contained

in the policy.    

6) The  functions  of  the  appellant  being  regulated  by  statutory

guidelines and circulars issued from time to time, any departure

therefrom must be held to be wholly unfair and mala fide.

7) The  insurance  companies  being  ‘State’  are  not  only  bound  to

comply with the constitutional scheme contained in the preamble

of the Constitution of India but also the provisions of  Section 10A

and other provisions of the Act.   

8) In  any  event  the  policies  must  be  construed  in  favour  of  the

insured in view of the maxim – contra proferentum and uberrimae

fidei.

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STATUTORY PROVISIONS, GUIDELINES ETC.  

14. Sections 10-A, 19(2) and 19(3) of 1972 Act, which are relevant for

our purpose, read as under :-

“10-A.  Transfer  to  Central  Government  of  shares vested in Corporation.- All the shares in the capital of the acquiring companies, being--

(a) the  National  Insurance  Company Limited;

(b) the  New  India  Assurance  Company Limited;

(c) the Oriental Insurance Company Limited;

(d) the  United  India  Insurance  Company Limited,  

and  vested  in  the  Corporation  before  the commencement  of  the  General  Insurance  Business (Nationalisation)  Amendment  Act,  2002  shall,  on such commencement, stand transferred to the Central Government.  

Section 19 - Functions of acquiring companies  

(1) …. …. ….

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(2) Each acquiring company shall  so function under  this  Act  as  to  secure  that  general insurance  business  is  developed  to  the  best advantage of the community.

(3) In the discharge of any of its functions, each acquiring company shall act so far as may be on business  principles  and  where  any  directions have been issued by the Central Government or the  Insurance  Regulatory  and  Development Authority established under sub-section (1) of section  3  of  the  Insurance  Regulatory  and Development Authority Act, 1999 (41 of 1999)  shall be guided by such directions.

(4) …. …. ….”

15. ‘Prospects’ has been defined in the Regulation 2(1)(e) of the 2002

Regulations to mean a document issued by the insurer or in its behalf to

the prospective buyers of insurance, and should contain such particulars

as are mentioned in  Rule 11 of Insurance Rules,  1939 and includes a

brochure or leaflet serving the purpose.  Such a document should also

specify the type and character of riders on the main product indicating

the nature of benefits flowing therefrom.   

16. Regulation 6 provides for the matters to be stated in the insurance

policy.

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Regulation 7(1)(n) of 2002 Regulations read thus :-

“7. Matters to be stated In general insurance policy.-- (1) A general insurance policy shall clearly state:

(n)  provision  for  cancellation  of  the  policy  on grounds of misrepresentation, fraud, non-disclosure of material facts or non-cooperation of the insured;”

Regulation 11(4) reads as under :-  

11. General.-

(4) Any breaches of the obligations cast on an insurer or insurance agent or insurance intermediary in terms of  these  regulations  may  enable  the  Authority  to initiate action against each or all of them, jointly or severally,  under  the  Act  and/or  the  insurance Regulatory and Development Authority Act, 1999.”

17. Indisputably  the  Authority  also  issued  guidelines  on  “File  and

Use”  requirements  for  general  insurance  products;  clause  3  whereof

relate  to  IRDA requirements  for consideration and review of products

meaning thereby the insurance policies.  The requirements specified by

the Authority are:-

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“(i) Design and rating of products must always be on sound  and  prudent  underwriting  basis.  The contingencies  insured  under  the  product  should  be clear and provide transparent cover which is of value to the insured.  

(ii) All literature relating to the product should be in simple  language  and  easily  understandable  to  the public at large. As far as possible, a similar sequence of presentation may be followed. All technical terms should be clarified in simple language for the benefit of the insured.  

(iii)  The  product  should  be  a  genuine  insurance product of an insurable risk with a real risk transfer. “Alternate  risk  transfer”  or  “financial  guarantee” business in any form will not be accepted.  

(iv) The insurance product should comply with all the requirements  of  the  Protection  of  Policyholders’ Interests Regulations 2002.  

(v)  Insurers  should  use  as  far  as  possible,  similar wordings for describing the same cover or the same requirement  across  all  their  products.  For  example clauses on renewal of  insurance,  basis  of insurance, due  diligence,  cancellation,  arbitration  etc.,  should have similar wordings across all products.  

(vi)  The  pricing  of  products  should  be  based  on appropriate data and with technical justification.  

(vii) The terms and conditions of cover shall be fair between the insurer and the insured.  

(viii) Margins built into rates shall be consistent with the  experience  of  the  insurer  in  respect  of commission,  management  expenses,  contingencies and profit.  

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(ix)  Insurer  should  take necessary steps  in  ensuring that  competition  will  not  lead  to  unprincipled  rate cutting and other improper underwriting practices.”

18. Guidelines 7 and 25 of the Guidelines issued by the IRDA on “File

and Use:” requirements for general insurance products read as under :-  

“7. Till the tariffs are in force, it will not be necessary for any insurer to file information on any product that complies  with  tariff  rates,  terms  and  conditions.  In respect of products that package insurance covers that are  governed by tariffs,  with  those that  are not,  the insurer should file such products and confirm that the section governed by tariffs complies with tariff rates, terms and conditions for the portion that is governed by tariffs, as long as tariffs remain in force.  

25. The documents to be filed in respect of every new product or revision of an existing product in respect of products classified under categories (i) and (ii) of para 19 above shall be as follows:  

i) Statement filing particulars of the product in Form A;  

ii) Certificate by the Chief Executive Officer in Form B;  

iii)  Certificate  by Appointed Actuary in  Form C;  

iv)  Certificate  by  the  company’s  lawyer  in Form D;  

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v)  Copies  of  Prospectus  and  other  sales literature relating to the product;  

vi) Copy of Proposal Form;  

vii)  Copy  of  Policy  Form  and  copies  of  the standard endorsements to be used with the policy; and  

viii) Copy  of  the  Underwriter’s  Manual  in respect of the product along with the list of declined risks, if any.  

Important:  While issuing the certificates under paras  (ii),  (iii)  and  (iv)  above,  persons responsible for issuing such certificates should carefully  go  through  all  the  required  aspects and apply due diligence. Serious view may be taken in case of any deficiencies.”

19. Clauses 16 to 18 provide for the responsibility for compliance.

20. For the purpose of obtaining approval of the terms and conditions

of the policy, the insurance companies are required to file the following

documents  before  the  authority  in  respect  of  a  new  product  or  any

revision  of  an  existing  product,  which  includes  a  certificate  by  the

company’s lawyer as specified in Form D appended thereto.   

21. The  National  Insurance  Company  being  one  of  the  subsidiary

companies of the General Insurance Company issued a letter dated 18th

December, 1998, inter alia, in the following terms :-

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“Different  situations  which  may  arise  during  the renewal of insurance and how to deal with them are summarized below :-

(1) In case of renewal without a break in the period the policy will be renewed including the disease  contracted  during  the  expiring  policy period.

(2) If there is a break, the fresh policy must specifically  exclude  the  disease  contracted during  the  expiring  policy  period  and  during the break period and it should be mentioned in the schedule of the Policy specifically  

(3) If an insured is already covered under an insurance policy, say, a group mediclaim, and wants to take an individual policy the same may be issued upto the identical sum insured on the same terms and conditions if there is  no break.

(4) If  a  person  is  insured  with  another subsidiary  and  wishes  to  renew  with  us,  the same  should  be  considered  only  after ascertaining  the  claim  status  and  exclusion under the previous policy.

In  case  the  claim  status  revealed  is adverse or there is a continuing illness or an impending illness, such cases should be  advised  to  continue  with  the  same subsidiary and should not be accepted.”     

ANALYSIS OF THE HIGH COURT JUDGMENT :

22. The  High  Court  has  considered  the  matter  under  the  following

broad headings :-

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a) The insurer have a public duty having regard to Article 47 of

the Constitution of India.

b) In view of the regulatory framework operating in the field it

has a limited power to contract.

c) The terms and conditions of the insurance policies provide

for an automatic renewal, the pre-condition whereof is only

timely payment of premium.

d) The construction of a contract  of insurance must be made

having regard to the nature and principles  underpinning a

contract of health insurance.   

e) For the purpose of effective implementation of a contract of

insurance  as  regards  mediclaim  policy,  business

considerations are wholly immaterial.

f) Different kinds of policies would attract different principles.

23. There  is  no  escape  from the  fact  that  the  appellant  is  a  ‘State’

within the meaning of Article 12 of the Constitution.  It has been created

under the 1972 Act.  The said Act, as the preamble shows, was enacted

for achieving  certain  purposes,  economic  benefit  of  the people  and/or

group of people, being one of it.  At the point of time when the 1972 Act

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was enacted the insurance companies enjoyed a monopoly status.  But

would it mean that only because it ceases to enjoy the same by itself is

sufficient  to hold that it  is  not required to follow the constitutional  or

statutory norms?  

24. If it is a ‘State’ its action must be fair and reasonable.  It has been

so held in a catena of  decisions of  the Court  as for example  Peacock

Plywood Plywood (P) Ltd.   v.  Oriental Insurance Co. Ltd. [(2006) 12

SCC 673 paragraphs 57 at page 691] and Life Insurance Corporation of

India v.  Consumer Education and Research Centre [(1995) 5 SCC 482].

25. There cannot be any doubt that Directive Principles of State policy

by  themselves  per  se  are  not  enforceable  in  a  court  of  law.   [See

Kesavananda Bharati  v.  State of Kerala [(1974) 3 SCC 225].

26. We would assume that it  is one thing to say that the State is to

make all endeavours to improve the public health but the same by itself

would not mean that a contract  of insurance governed by statute must

receive  construction  in  terms  of  the  said  provision  or  otherwise,  the

endeavour of the State should have been to direct compulsory insurance

for all its citizens.  Improvement of public health has been held to mean

an obligation on the part of the State to put forth its policy to ecological

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balance and hygienic environment, the later being an indirect facet of the

right to healthy life. {Virinder Gaur and others  v.  State of Haryana and

others [(1995)  2  SCC 577]}.   {[See  also  Kirloskar  Brothers  Ltds. v.

Employees’ Stte Insurance Corporation [(1996) 2 SCC 682]}.

27. Even otherwise the term “health” may be given a wider meaning in

the context  of insurance.  It  may mean sound health.   Collins English

Dictionary defines “health” as :-

“Health: the  state  of  being  bodily  and  mentally vigorous and free from disease, the general condition of body and mind: in poor health, the condition of any unit, society, etc.: the economic health of a nation, a toast  to  a  person,  wishing  him or  her  good  health, happiness, etc.,  (modifier)  of or relating to food or other  goods  reputed  to  be  beneficial  to  the  health: health food; a health store., (modifier) of or relating to health,  esp.  to the administration of health:  a health committee;  health  resort;  health  service.,  an exclamation wishing someone good health as part of a toast (in the phrases your health, good health, etc.).”

28. The functions of the insurance companies are governed by statute.

A  contract  of  insurance,  therefore,  must  subserve  the  statutory

provisions.  It must indisputably be construed having regard to the larger

public policy and public interest guiding nationalization of the insurance

companies.

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29. Insurance Sector is regulated. The provisions of the Insurance Act

are applicable to all  insurance companies irrespective of the fact as to

whether they are in public sector or private sector.  When a business is

regulated, all concerned would be governed thereby.

30. It is one thing to say that the terms and conditions of a contract are

statutory in nature but is another thing to say that the statute governs or

controls the business itself.  It is the latter which is applicable to the fact

of the case.   

Two things are apparent.  One, the Central Government has come

out with a new economic policy.   The monopoly status has been taken

away  from  the  General  Insurance  Corporation  of  India  and  its

subsidiaries.   The  insurance  companies  are  required  to  compete  with

others in the field, but the same may not necessarily mean that despite the

statutory interdicts the public sectors insurance companies must have a

level playing field with the private insurance companies.   

31. We  have,  despite  the  new  economic  policy  of  the  Central,  no

option but to proceed on the assumption that the public sector insurance

companies being a State have a different role to play.  It is not to say that

as a matter of policy statutory or otherwise the insurance companies are

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bound  to  regulate  all  contracts  of  insurance  having  the  statement  of

Directive Principles in mind but there cannot be any doubt whatsoever

that  fairness or reasonableness on the part  of the insurance companies

must appear in all of its dealings.   

The Authority wants the insurance companies to offer a fair deal

and all the terms and conditions of their offer must be transparent.  There

should not be any hidden agenda.  Even they should not take recourse to

‘ticketing contract’.   

When, however, the terms of the new product or revised product

require the approval of the Authority, prima facie the same would mean

that they are fair and reasonable.  The action on the part of the Authority

is not in question.  Regulations, guidelines and circulars are binding on

the  insurance  companies.   {See  State  of  Kerala  &  Ors.  v.  Kurian

Abraham (P) Ltd. & Anr. [(2008) 3 S.C.C. 582]}

Different  principles,  however,  have  been  laid  down for  dealing

with different kinds of policies.  Broadly we may divide them into two

categories – life insurance which is based on an annuity scheme does not

require any renewal clause.  Policies not involving the life of an insured

would, however, stand on a different footing.   

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32. It  has  a tariff  policy.   It  is  completely under  the control  of  the

Regulatory Authority.  The tariff has to be fixed by the Authority.  What

should  be  the  reasonable  tariff  would  again  be  the  subject  matter  of

exercise of jurisdiction by the Authority.  So far as non tariff policies are

concerned, the insurance companies may charge tariff but the terms and

conditions  thereof  are  regulated  by  the  Authority.   Indisputably,  the

Authority intends to grant statutory protection to the policy holders.  It is

with that end in view the Protection Regulations were framed.  It speaks

of  ‘prospectus’.   It  speaks  of  the  mode  and  manner  in  which  the

insurance companies should function.  Not only that even the guidelines

have been framed on ‘file and use’ requirements.  Before the Authority

each insurance company has undertaken that  they will  be fair  in  their

dealing.  It is one thing to say that if they breach their terms which would

attract the penal clause as contained in sub-clause (4) of Clause 11 of the

Regulations,  the  Authority  may  take  action  against  the  Insurance

Company but it is another thing to say that the Authority would also be

entitled to redress the individual grievances.  Matter may be different if it

is  to  be held  that  the  policies  are automatically  renewable or  for  that

matter  all  insured had a legal  right  of renewal as was the case in  D.

Nataraja Mudaliar  v.  The State Transport  Authority of India,  Madras

24

[AIR 1979 SC 114], but it is another thing to say that no such legal right

exists at all.  

33. We will deal with that aspect of the mater a little later.  

34. We may, however,  at  this  stage  notice  that  when the terms and

conditions  of  contract  of  insurance  are  fixed,  the  protective  umbrella

over the interest of the policy holders became fully open.  The insurance

companies cannot either in their prospectus or in the terms of policy lay

down  any  condition  which  would  be  derogatory  to  the  terms  and

conditions  approved  by  the  Regulatory  Authority.   If  the  contract  of

insurance itself provides for renewal of an insurance policy the same may

not mean that the assured has a legal right of automatic renewal, but the

courts are required to strike a balance.  

35. Another  distinction  in  the  approach  of  the  Court  in  this  behalf

must also be borne in mind, namely that a court may exercise its power

of judicial review at the threshold of formation of a contract as was the

case in Ramana Dayaram Shetty   v.  The International Airport Authority

and  others [AIR  1979  SC 1628]  and  the  cases  where  the  terms  and

conditions of contract are to be enforced.  Whereas in the former case,

the courts’ jurisdiction is wider, in the latter, it is not.  We may, however,

25

hasten to add that it does not mean that the court shall not interfere even

in a case where the term of the contract is against the public policy or

where  in  enforcing  the  same  the  State  acts  arbitrarily,  unfairly  or

unreasonably  or  makes  discrimination  amongst  the  persons  similarly

situated.   

36. Keeping in  view the aforementioned principles  we may have to

construe the provisions of the prospectus,  the jurisdiction of the Third

Party Administrator, cover incepts etc.                                           

PROSPECTUS – MEDICLAIM INSURANCE POLICIES

37. The prospectus issued provide for salient  features of  the policy,

some of them are :-

“1. SALIENT FEATURES OF THE POLICY:

1.1  The  policy  covers  reimbursement  of Hospitalisation/ Domiciliary Hospitalisation expenses for illness/diseases or   injury sustained.

1.2  In  the  event  of  any claim becoming  admissible under this scheme, the company/TPA will pay to the Hospital/Nursing  Home  or  the  Insured  person  the amount of such expenses as would fall under different heads   mentioned below, and as are reasonable and necessarily incurred thereof by or on    behalf of such Insured  Person,  but  not  exceeding  the  Sum Insured aggregate in the schedule hereto.

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A) Room,  Boarding  Expenses  as  provided  by  the hospital/Nursing home.

B) Nursing Expenses.  

C) Surgeon,  Anaesthetist,  Medical  Practitioner,  Consultants, Specialists Fees.

D) Anaesthesia,  Blood,  Oxygen,  Operation  Theatre  Charges, Surgical  Appliances,   Medicines  &  Drugs,  Diagnostic Materials and X-Ray, Dialysis, Chemotherapy,  Radiotherapy, Cost  of  Pacemaker,  Artificial  Limbs & Cost  of  Organs  and similar expenses.

(N.B. 1.  Company's  Liability in  respect  of  all claims admitted during the period of insurance  shall  not  exceed the  Sum Insured  per  person mentioned in the schedule.)

38. What would be covered under the policy and what would not are

matters governed by the Acts, Regulations and Guidelines.  The limited

liability of the insurance provides for a third party administrator, who is

engaged for the purpose of health services and may not only oversee the

claim but may also disburse it.   

In order to appreciate the rival contentions the question as regards

whether the policy is continuous or otherwise statutorily renewable we

may notice the following clauses.  

“4.1  Any  diseases/injuries  which  are  pre-existing when  the  cover  incepts  for  the  first  time.   For  the

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purpose  of  applying  this  condition,  the  date  of inception  of the initial  mediclaim policy taken from any of the Indian Insurance Companies shall be taken, provided  the  renewals  have  been  continuous  and without any break.

4.3 During the first year of the operation of he policy, the  expenses  on  treatment  of  diseases  such  as Cataract,  Benign  Prostatic Hypertrophy, Hysterectomy  for  Menorrhagia  or Fibromyoma, Hernia, Hydrocele, Congenital  Internal diseases.  Fistula in anus,  piles,  Sinusitis  and related disorders are not payable.

11. This insurance policy is issued for a period of one  year  and  subject  to  review.   Continuation  of insurance  cover  will  be  available  in  the  renewal premium  is  paid  in  time.   On  continuation  of insurance  cover  and  timely  remittance  of  premium insured  becomes eligible  to  following benefits  from first day after renewal.

a) Cumulative bonus if accrued (Ref. Item 9)

b) Cost of health check-up if due (Ref. Item 10)

c) Payment  for  hospitalization  cost  for disseases/illness/injury sustained even during first 30 days of renewal (Ref. Deletion of 4.2 and 4.3)  

13. Cancellation  Clause  :  The  policy  may  be renewed by mutual consent.  The Company shall not however  be  bound  to  give  notice  that  it  is  due  for renewal and the Company may at any time cancel this policy  by  sending  the  Insured  30  days  notice  by registered  letter  at  the insureds’  last  known address and in  such event  the  Company shall  refund to  the Insured a pro-rata  premium for  unexpired Period  of

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Insurance.   The  Company  shall,  however,  remain liable for any claim, which arose prior to the date of cancellation.  The Insured may at any time cancel this Policy  and  in  such  event  the  Company  shall  allow refund  of  premium at  Company’s  short  period  rate only (Table given here below) provided no claim has occurred up to the date of cancellation.

Period of Risk Rate  of  Premium  to  be charged

Up to one month ¼ of the annual rate Up to three months ½ of the annual rate Up to six months 3/4th of the annual rate Exceeding six months Full annual rate   ”     

39. All  mediclaim insurance  policies,  a  proforma whereof  has  been

brought to our notice, contain almost identical clauses, some of which

are:-

4.0 The Company shall not be liable to make any payment under this policy in respect of any expenses whatsoever incurred by any Insured Person in connection with or in respect of :

4.1 All diseases/injuries which are pre-existing when the cover incepts for the first time.  

4.2 Any disease other than those stated in clause 4.3, contracted by  the  Insured  person  during  the  first  30  days  from the commencement date of the policy.  This exclusion shall not, however,  apply  if  in  the  opinion  of  Panel  of  Medical Practioners constituted by the Company for the purpose, the insured person could not have known of the existence of the Disease of any symptoms or complaints thereof at the time

29

of making the proposal for insurance to the Company. This condition 4.2 shall not however apply in case, of the insured person  having  been  covered  under  this  scheme  or  group insurance  scheme  with  any  of  the  Indian  Insurance companies for a continuous period of preceding 12 months without any break.

4.3 During  the  first  year  of  the  operation  of  the  policy,  the expenses on treatment of       diseases  such  as  Cataract,  Benign  Prostatic Hypertrophy, Hysterectomy  for  Menorrhagia  or, Fibromyoma,  Fistula  anus,  Piles,  Sinusitis  and  related disorders are not payable.  If these diseases are Pre-existing at  the  time  of  proposal  they  will  not  be  covered  during subsequent period of renewal too.  

5.7 The Company shall  not be liable to make any payment  under  the  policy  in  respect  of  any claim if such claim be in any manner fraudulent or supported by any fraudulent means or device whether by the Insured Person or by any other person acting on his behalf.

5.9 The policy may be renewed by mutual consent. The Company shall  not  however  be bound to give  notice  that  its  due  for  renewal  and  the Company may at any time cancel this.  Policy by  sending  the  Insured  30  days  notice  by registered  letter  at  the  insured  last  known address  and in  such event  the Company shall refund to the Insured a pro-rata premium – for unexpired Period of Insurance.  The Company shall,  however,  remain  liable  for  any  claim which  arose  prior  to  the  date  of  cancellation. The Insured may at any time cancel this Policy and  in  such  event  the  Company  shall  allow refund of premium at Company’s short  period rate only  (table given here below) provided no claim  has  occurred  up  to  the  date  of cancellation.  

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Period of Risk  Rate  of  Premium  to  be charged

Up to one month ¼ of the annual rate Up to three months ½ of the annual rate Exceeding six months Full annual rate     

7. CUMULATIVE BONUS “

Sum  insured  under  the  policy  shall  be progressively  increased  by  5%  in  respect  of each  claim  free  year  of  insurance  subject  to maximum accumulation of 10 claim free years of insurance.

7.1 In case of a claim under the policy in respect of insured person who has earned the cumulative bonus the increased percentage will be reduced by  10%  of  sum insured  at  the  next  renewal. However basic sum insured will be maintained and will not be reduced.”  

CONSTRUCTION OF THE CONTRACT OF INSURANCE :

40. We may, for this purpose, notice a few precedents operating in the

field.   In  New Indian  Assurance  Co.  Ltd. v.  Harshadbhai  Amrutbhai

Modhiya & Anr. [(2006)  5  SCC 192],  this  Court  opined that  even  in

respect of a contract of insurance, contracting out may be permissible.  In

his separate Judgment, P.K. Balasubramanian, J. opined :

“A contract of insurance is to be construed in the first place from the terms used in it, which terms are themselves to be understood in their primary,  natural,  ordinary  and  popular  sense.

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(See  Colinvaux’s  Law of  Insurance,  7th Edn., para  2-01).   A  policy  of  insurance  has therefore,  to  be  construed  like  any  other contract.  On a construction of the contract in question  it  is  clear  that  the  insurer  had  not undertaken the liability for interest and penalty, but had undertaken to indemnify the employer only  to  reimburse  the  compensation  the employer was liable to pay among other things under  the  Workmen’s  Compensation  Act. Unless one is in a position to void the exclusion clause  concerning  liability  for  interest  and penalty imposed on the insured on account of his failure to comply with the requirements of the Workmen’s Compensation Act of 1923, the insurer cannot be made liable to the insured for those amounts.”

41. One important facet of the matter which must also be taken note of

is duty on the part of a State to act fairly.   Such a fair dealing is expected

at  the  hands  of  a  State  within  the  meaning  of  Article  12  of  the

Constitution of India.  Strong reliance has been placed by Mr. Parekh on

the decision of this Court in  Mahabir Auto Stores & Ors. v.  Indian Oil

Corporation & Ors. [(1990) 3 SCC 752] and Kumari Shrilekha Vidyarthi

& Ors. v. State of U.P. & Ors. [(1991) 1 SCC 212].  There cannot be any

doubt  whatsoever  that  Article  14  of  the  Constitution  of  India  which

encompasses within its fold, obligations on the part of the State to act

fairly which operates also in the contractual field but the said principle

would be applicable more in a case where bargaining power is unequal or

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where the contract is not a negotiated one and/or is based on the standard

form contracts between unequals.  Some of these decisions, however, had

been taken into consideration in  Asstt.  Excise  Commissioner. v.  Issac

Peter [(1994 (4) SCC 104] whereupon strong reliance has been placed by

the learned Solicitor General.  Therein, inter alia, it was held :

“26.  Learned  Counsel  for  Respondents  then submitted  that  doctrine  of  fairness  and reasonableness  must  be  read  into  contracts  to which State is a party. It is submitted that the State cannot act unreasonably or unfairly even while  acting  under  a  contract  involving  State power. Now, let us see, what is the purpose for which this  argument is  addressed and what is the implication? The purpose, as we can see, is that  though  the  contract  says  that  supply  of additional  quota  is  discretionary,  it  must  be read  as  obligatory  -  at  least  to  the  extent  of previous year's supplies - by applying the said doctrine. It is submitted that if this is not done, the  licencees  would  suffer  monetarily.  The other purpose is to say that if the State is not able to so supply, it would be unreasonable on its  part  to  demand  the  full  amount  due  to  it under  the  contract.  In  short,  the  duty  to  act fairly is sought to be imported into the contract to modify and alter its  terms and to create an obligation upon the State which is not there in the  contract.  We  must  confess,  we  are  not aware  of  any  such  doctrine  of  fairness  or reasonableness. Nor could the learned Counsel bring  to  our  notice  any decision  laying down such a proposition. Doctrine of fairness of the duty to act fairly and reasonably is a doctrine developed  in  the  administrative  law  field  to ensure the Rule of Law and to prevent failure of

33

justice  where  the  action  is  administrative  in nature.  Just  as  principles  of  natural  justice ensure fair decision where the function is quasi- judicial,  the doctrine of fairness is  evolved to ensure  fair  action  where  the  function  is administrative.  But  it  can  certainly  not  be invoked  to  amend,  alter  or  vary  the  express terms of the contract between the parties. This is  so,  even  if  the  contract  is  governed  by statutory provisions, i.e., where it is a statutory contract - or rather more so. It is one thing to say that  a contract  - every contract  -  must  be construed  reasonably  having  regard  to  its language. But this is not what the licencees say. They seek to create an obligation on the other party to the contract, just because it happens to be the State. They are not prepared to apply the very same rule in a converse case,  i.e.,  where the State has abundant supplies and wants the licencees  to  lift  all  that  stocks.  The licencees will  undertake  no  obligation  to  lift  all  those stocks even if the State suffers- loss. This one- sided  obligation,  in  modification  of  express terms of the contract, in the name of duty to act fairly, is what we are unable to appreciate.”

42. A bare perusal of the said decision would show that the same was

rendered in the context of contracts entered into between the State and its

citizens  pursuant  to  public  auction  of  tenders  or  by  negotiation.

Respondents therein sought to get new term incorporated in the Contract

on the specious plea of fairness.  The said place was rightly rejected.  The

fact, however, remains that the ratio in Issac is not applicable to the fact

of the present case not because the duty to act fairly on the part of a State

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has no application in the field of a contract but the same would not apply

for the purpose of alterations or modifications of a term of contract.   

43. Existence of the jurisdiction of the Superior Court of India upon

invoking Article 14 of the Constitution as also Section 23 of the Indian

Contract Act to strike down a clause in the contract which the court feels

to be unconscionable having regard to the equal bargaining power of the

parties  is  not  in  question  but  the  said  provisions  would  have  no

application for the purpose of modifications, alterations or additions of a

term in the contract.   There cannot furthermore be any doubt whatsoever

that  each  case  must  be  considered  on  its  own  facts  which  would

obviously lead to the conclusion that by reason thereof the Court shall

not read into the contract an automatic renewal clause in a contract of

insurance if there does not exist any.   

44. This brings us to the question of reading the prospectus into the

contract of insurance.  We do not find that the prospectus and contract of

insurance speak on different terms.  They seek to attain the same object.

Clause 11 and 13 of the prospectus and clauses 5, 9 and other clauses

lead  to  one  conclusion  that  the  policy is  subject  to  renewal  which  is

dependent upon the mutual consent of the parties.  It is also evident that

both the parties have the rights to cancel the insurance policy.  If it is to

35

be held otherwise, logical corollary would be that even the insured would

not be at liberty not to discontinue the insurance policy.  But herein we

are not concerned with such a question.

45. Let  us,  at  this  stage,  consider  some of the  decisions  relating to

contracts of insurance.  In  Pradeep Kumar Jain v.  Citi Bank [(1999) 6

SCC 361], this Court distinguished a case of general insurance from that

of life insurance, stating :

“6. In the case of life insurance policy certain sum  agreed  to  be  paid  by  the  insurance company  in  the  event  of  the  death  of  the insured or a contingency arising as indicated in the policy. The obligation is then on the insured to pay the premiums periodically. There is no other  obligation  upon  him.  In  the  case  of  a motor vehicle, the risk to be covered is not only in  respect  of  a  vehicle  but  also  towards  the injury  to  others  or  damage  caused  to  the property arising out of an accident. In such an event,  when the  policy is  renewed  or  a  fresh policy is  applied for,  an application has to be given  and  it  is  to  be  indicated  whether  any claim had been made in the previous year or not and to  furnish appropriate  material  as regards the valuation of the vehicle. It can also be made clear  as  to  the  nature  and  extent  of  the  risk covered  whether  it  is  only  third  party  or comprehensive  or  otherwise.  The  obligation under  the  Act  is  only  at  least  to  cover  third party  risk.  Thus  mere  payment  of  premium could not result in an automatic renewal of the policy.  In  the  circumstances,  we find that  the appellant also had certain duties to discharge in

36

the  matter  of  obtaining  insurance  policy  and cannot  merely  put  the  blame  on  the  first respondent.”

46. As  a  proposition  of  law,  where  a  renewal  is  based  on  mutual

consent, there may be no automatic renewal as has also been held by this

Court in  Depot Supdt., H.P. Corporation Ltd. v.  Kolhapur Agricultural

Market  Committee [(2007)  6  SCC  159]  but  as  would  be  discussed

hereinafter, a mediclaim policy where a senior citizen is involved would

stand somewhat on a different footing.  It will depend upon the contract

entered into between the parties and the statutes operating in the field as

also constitutional scheme.  We do not agree with the submission of the

learned  Solicitor  General  that  wherever  renewal  is  subject  to  mutual

consent  to the parties,  a State  may at its  whims and caprice refuse to

renew.

47. We may, at this juncture, notice a decision of the Supreme Court

of  Ireland  whereupon  strong  reliance  has  been  placed  by  learned

Solicitor General in Carna Foods Ltd. v. Eagle Star Insurance Company

[1997 (2) ILRM 193] wherein it was held :

“The plaintiffs say that one must imply a term into  the  policies  of  insurance  issued  by  the defendant  to  the  plaintiffs  in  this  case  to  the effect that if a policy is cancelled or its renewal

37

is  declined  the  defendant  must  give  their reasons for so doing.  Apart from cases where the law implies some terms into certain kinds of contract, whether by statute or by common law (for  example  sale  of  goods,  hire  purchase, landlord and tenant, sale of lands etc.) one can imply  a  term  into  a  contract  only  when  the implied term gives effect to the true intentions of all the parties to the contract who might be affected by such implied term.  The learned trial judge in his judgment in this case which is now reported  at  [1995]  1  IR  526  at  p.532  quoted from the well known dictum of MacKinnon LJ. In Shirlaw v.  Southern  Foundries  (1926)  Ltd. [1939] 2 K.B. 206 and I also quote that dictum here:-

“Prima facie that which in any contract is left  to  be  implied  and  need  not  be expressed is something so obvious that it goes without saying; so that, if, while the parties  were  making  their  bargain,  an officious bystander were to suggest some express  provision  for  it  in  their agreement,  they  would  testily  suppress him with a common ‘Oh of course!’.”

Here the evidence before the learned trial judge is quite clearly to the effect that if such a term were  sought  to  be  included  in  the  insurance policies  at  the  time  when  the  plaintiffs  were seeking insurance the defendant would not have contracted  with  the  plaintiffs  at  all.   If  the officious  bystander had interrupted in  relation to condition 13 of the policies and had asked the defendant “If you do cancel, will you give your reasons for canceling”.   The defendant’s answer  would  have  been  an  emphatic  “No” whereas to imply such a term into the policies the  answer  would  have  to  be by both  parties “Yes,  of  course”  expressed  rather  testily  to

38

discourage the officious bystander from further interrupting.

It is also helpful to quote what Pearson LJ. Said in  1973  in  Trollope  and  Colls  Ltd.  v.  North West  Metropolitan  Regional  Hospital  Board [1973] 1 DPP 601 at p.609 :

“An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them” it must have been a term that went without saying, a term necessary to give business efficacy  to  the  contract,  a  term  which, though tacit, formed part of the contract which the parties made for themselves.”

These  basic  principles  of  law  preclude  the implication  of  a  term into  the  policies  to  the effect  that  in  the  event  of  a  declinature  or cancellation the defendant must state its reasons therefore.”

48. The  said  decision,  therefore,  does  not  rule  out  the  effect  of  an

implied contract.   We must,  however, place on record that  the United

Kingdom and Ireland do not  have a written constitution.   Doctrine of

fairness would not be radiant in a contract in those courts.  Decisions

rendered  in  other  jurisdictions  merely  have  a  persuasive  and  not  a

binding  nature.   A  foreign  law  should  not  be  applied  when  the

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constitutionalism operating in the countries  are different.   We have to

apply the law keeping in view the equality clause contained in Article 14

of the Constitution of India.  It is a heart and soul of our Constitution.

49. Even doctrine of equality had not  ordinarily been applied in the

field of administrative law in England.  Keeping in view the advent of

human right  regime doctrine of  equality is  now being applied even in

administrative law in UK.  It is a recent trend of the English courts as

would appear from the judgment of the House of Lords wherein the court

refused to draw a distinction in the matter of ‘indefinite detention’ of a

British Citizen and a Non-citizen.  [See A (FC) & Ors. (FC) v. Secetary

of State for the Home Department [2004 UKHL 56]

50. It was furthermore contended that the writ court would ordinarily

not grant specific performance of a contract even if it is found that there

exists a renewal clause or there has been a breach of contract on the part

of the appellant.  Ordinarily, it is so.  A writ of mandamus shall not issue

in case of a breach of contract.  The court shall also not ordinarily issue a

writ of mandamus directing a party to perform a specific performance of

the contract in exercise of its writ jurisdiction.   

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We, however,  would  notice  that  this  is  the ordinary law as  has

been held in  Hardesh Ores (P) Ltd. v.  Hede & Co. [(2007) 5 SCC 614

and Divisional Forest Officer v. Bishwanath Tea Co. Ltd. [(1981) 3 SCC

246].  In  Bishwanath Tea Co., this Court had used the word ordinarily.

Hardesh was a case arising out of a civil suit.  The question which arose

therein was as to whether exercise of option by company was for renewal

itself sufficient where the execution of a fresh document is necessary.   

Section 24A, introduced in 1972 Act, has invited a comment by

learned Solicitor General that the situation has completely changed.  The

High Court might have made broad statement that by reason thereof, a

State within the meaning Article 12 of the Constitution of India, does not

cease to be one but, in our opinion, that is not the point.  The point is

what  would be the effect.   Would it  mean that  two concepts,  namely,

Article  12  of  the  Constitution  and  Section  24A  of  the  1972  Act  are

different?  If they are not, in a given case, it may be possible to hold that

even while the State shall have more liberty to enter into a contract or fix

the terms and conditions thereof having regard to the field of competition

opened by reason of taking away of its the monopoly status, but there

exists a distinction between the acts of a private player and the State.   

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51. We, however, do not mean to say that even in the field of contract

qua contract, the State is not free to negotiate its terms; what we mean to

say is that its action cannot be arbitrary.  Role of both are different.  A

private player, as the law stands now, may not be bound to comply with

the constitutional requirements of the equality clause, the appellants are.

52. There exists a distinction between a private player in the field and

a public sector insurance company.  Whereas a private player in the field

is  only  bound  by the  statutory  regulations  operating  in  the  field,  the

public  sector  insurance  companies  are  also  bound  by  the  directions

issued  by  the  General  Insurance  Corporation  as  also  the  Central

Government.  They cannot be ignored.  The said directions are not said to

be in derogation of the statutory provisions.  Their validity is not under

challenge.

53. We  may  also  notice  that  the  Universal  Declaration  of  Human

Rights states that :

“Everyone  has  right  to  a  standard  of  living adequate  for  the  health  and  well-being  of himself  and  his  family,  including  food, clothing,  housing  and  medical  care,  and necessary  social  services,  and  the  right  to security in the vent of unemployment, sickness, disability, widowhood, old age, or other lack of

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livelihood  in  circumstances  beyond  his control.”

54. The declaration also demands that the member nations secure the

recognition and observance of the said rights.  The authority would do

well in issuing appropriate direction keeping in view the aforementioned

human rights and particularly in view of the fact that the Government of

India  does  not  provide  for  any social  security  by way of  compulsory

insurance.  Unlike the provisions of the Motor Vehicles Act, 1988 such

compulsory insurance does not find a place in any statute book.   

We,  in  the  aforementioned  situation,  have  strived  to  strike  a

balance  between  the  human  rights  as  contained  in  the  Universal

Declaration of Human Rights as also the right of a State and others who

perform public  utility  provisions  like  insurance  companies.  It  is  also

useful to note that although ordinarily a contract  of insurance services

would  not  come within the  purview of  the public  utility services,  the

Legal  Services  Act,  1987,  as  amended  in  2002,  says  so  in  terms  of

Section 22(b) or 22(c) thereof.

55. We are  referring  to  the  aforementioned  provisions  only  with  a

view to  show that  whereas  attempts are being  made to  strengthen the

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control over the insurance sector by creating new forums which would

easily  be  accessible  to  the  service  recipient,  the  insurance  companies

having regard to the new policy of the Central Government, in general

and  under  Section  24A  of  the  1972  Act  in  particular  should  not  be

allowed to make all attempts to frustrate the same.  Whereas on the one

hand we cannot forget the new market economy and the Foreign Direct

Investment, we also cannot shut our eyes to the ground realities. There is

a huge gap between the high sounded wants of the Government and the

realities on the ground.  It is essential  that while on the one hand, the

insurance companies are not put to undue burden keeping in view the

changes  in  the  statute  as  also  the  policy  decisions  of  the  Central

Government, they cannot also be permitted to act wholly arbitrarily and

unreasonably.   They cannot  be  permitted  to  create a  social  condition

which  would  negate  all  human rights.   We although would  not  place

medicare  and  old  age  being  the  facets  of  human  rights  with  abject

poverty,  but  then  the  gap  between  the  object  on  the  statutes  and  the

action on the part of the players on the field must be taken care of.

JUDICIAL REVIEW

56. The action was brought by private individuals.

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The writ petition, however, had wider ramification.  They not only

would affect the writ petitions, but also others who would be similarly

situated.   

Such cases may not be dealt with as individual cases.

In  appropriate  case,  such  litigation  may  be  regarded  as  public

interest litigation.

Even if it not so regarded, the High Court may consider the same

to be ‘Public Law Litigation’

While  determining  a  lis  having  public  law  domain,  the  courts

would be entitled to take a broader view.  It would not consider to be

case involving contract-qua-contract question only.

Even  cases  involving contracts  may be determined by the High

Court in exercise of its jurisdiction under Article 226 of the Constitution

of India. (see  LIC of India & Anr. v. Consumer Education & Research

Centre & Ors. [(1995) 5 SCC 482],  Sanjana M. Wig (Ms) v.  Hindustan

Petroleum Corpn.  Ltd. [(2005)  8 SCC 242],  ABL International  Ltd &

Anr. v. Export Credit Guarantee Corporation of India Ltd & Ors. [(2004)

3  SCC  553],  The  D.F.O,  South  Kheri  &  ors. v.  Ram Sanehi  Singh

[(1971)  3  SCC 864,  Noble  Resources  Ltd. v.  State  of  Orissa  & Anr.

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[(2006) 10 SCC 236].  We, however, do not think that facts involved in

each case and the law laid down therein need not be discussed as there

does not exist any basic principles therefor. These  cases  do  not  involve

serious disputed question of fact.

Basic facts are admitted.  The High Court was concerned with the

interpretation of statute and interpretation of the contract.

Judicial  Review  of  the  impugned  action  on  the  part  of  the

appellant was, therefore, permissible.

APPLICATION OF LAW

57. Keeping  in  view  the  aforementioned  legal  principles,  we  may

notice the fact of each case.   

58. The  insurer  in  SLP  (C)  No.9877entered  into  a  contract  of

mediclaim insurance  in  1990  for  a  sum of  Rs.90,000/-  from 1992  to

2002.  He had been making payments of the premiums regularly.  His

policy had been renewed every year.  It was also renewed for the period

4.10.2001 to  3.10.2002.   The insured’s  wife,  son and daughter-in-law

have also entered into such policy since 1992.  Their policies had also

been renewed from time to time without any change in terms.   

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59. On or about 9.9.2002, Respondent No.1 handed over a cheque for

a sum of Rs.6,377/- by way of renewal of insurance policy.  As no action

thereon was taken, a reminder was sent.  A legal notice was also issued.

The legal notice was refused to be accepted by the Divisional Manager.

In  response  thereto,  only  on  30.9.2002,  the  appellant  stated  that  the

policy  would  be  renewed  by  loading of  300%  premium.   A  sum of

Rs.18,982  was  deposited.   A  receipt  acknowledging  the  sum  of

Rs.6,377/- was also issued.  Despite issuance of the said sum, the policy

was  not  renewed.   Strangely  enough,  only  on  October  3,  2002,  the

appellant  stated  that  the  said  policy  could  be  renewed  subject  to

exclusion of the diseases specified therein.  It was in the aforementioned

situation, the writ petition was filed.

60. In SLP (C) No.10205 of 2004, the second respondent,  who is a

practicing  consultant  neurologist  and physician  since  1961,  had  taken

mediclaim insurance for himself his wife and his family members since

1992-1993.  He was diagnosed with Hypogamglobulinemias in August-

September 1999.  Despite the same, the policy was renewed.  By a letter

dated 26.7.2002, appellant informed him that his mediclaim policy which

was to expire on 13.8.2002 would be renewed subject to the exclusion of

the  disease  Septioemia  with  Hypogamglobulinemias  and  was  advised

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that the next premium will be accepted after loading of 100% with 5%

excess for each and every claim.  It is at that juncture, the writ petition

was filed.

61. Respondent  No.3  in  SLP  (C)  No.10205  of  2004  had  taken  a

mediclaim policy and  accident  insurance  policy in  1988.   By a  letter

dated  15.1.2002,  the  mediclaim  policy  for  the  year  2002-2003 was

refused to be renewed and he was asked to renew his policy in another

company.  The policy was cancelled.

62. We have noticed the judgment of the Gujarat High Court in each

of these cases.   

63. First  Respondent  in  SLP  (C)  No.1534  of  2006  approached  the

Delhi  High  Court  when  the  joint  mediclaim policy was  refused  to  be

renewed.   His  claim  of  Rs.  2,19,660/-  which  he  had  incurred  for

undergoing a bye-pass surgery in January 2003 was refused to be paid.

He had obtained mediclaim policy in April, 1995.  The same had been

renewed.  He had undergone Angioplasty in July 1998 and again in June

2001.  He  had  undergone  a  bye-pass  surgery  in  December  2002.

Respondent No.1 tendered premium for renewal of the policy in April,

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2003 which was declined on the ground of ‘high claim ratio in the last

three years’.   

64. Each of the aforementioned cases clearly shows that the action on

the  part  of  the  authorities  of  the  appellant  was  highly  arbitrary.

Respondents  though  were  not  entitled  to  automatic  renewal,  but

indisputably, they were entitled to be treated fairly.  We have noticed

hereinbefore some of the clauses contained in the prospectus as also the

insurance policy.  When a policy is cancelled, the conditions precedents

therefor  must  be  fulfilled.   Some reasons  therefor  must  be  assigned.

When an exclusion clause is resorted to, the terms thereof must be given

effect to.  What was necessary is a pre-existing disease when the cover

was inspected for the first  time. Only because the insured had started

suffering from a disease, the same would not mean that the said disease

shall be excluded.  If the insured had made some claim in each year, the

insurance company should not  refuse to renew insurance policies  only

for that reason.  The words ‘incepts  for the first time’ as contained in

clause  4.1  as  also  the  words  ‘continuous  and  without  break’  if  the

renewal  premium is  paid  in  time,  must  be  kept  in  mind  as  also  the

reasons for cancellation as contained in clause 7(1)(n) thereof.   

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65. Renewal of a medi-claim policy subject to just exceptions should

ordinarily  be made.   But  the  same does  not  mean that  the  renewal  is

automatic.  Keeping in view the terms and conditions of the prospectus

and the insurance policy, the parties are not required to go into all the

formalities.  The very fact that the policy contemplates terms for renewal,

subject of course to payment of requisite premium, the same cannot be

placed at par with a case of first contract.

66. Having regard to the fact situation obtaining in each case, we are

not inclined to exercise our discretionary jurisdiction under Article 136

of the Constitution of India.  Before parting with this case, however, we

would  like  to  observe  that  keeping  in  view  the  role  played  by  the

insurance companies, it is essential  that the Regulatory Authority must

lay down clear guidelines by way of regulations or otherwise. No doubt,

the regulations would be applicable to all the players in the field.  The

duties and functions of the Regulatory Authority, however, are to see that

the service provider must render their services keeping in view the nature

thereof.  It will be appropriate if the Central Government or the General

Insurance Companies also issue requisite circulars.

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67. Appellants  before  us  being  subsidiaries  to  General  Insurance

Corporation cannot ignore the statutory provisions.  They are bound by

the directions issued by the Central Government.  

68. We would request the IRDA to consider the matter in depth and

undertake a scrutiny of such claims so that in the event it is found that

the insurance companies are taking recourse to arbitrary methodologies

in the matter of entering into contracts of insurance or renewal thereof,

appropriate steps in that behalf may be taken.

68. These appeals are dismissed with costs.  Counsel’s fee assessed at

Rs.25,000/- (Rupees twenty five thousand only) in each case.

………………………….J. [S.B. Sinha]

..…………………………J. [V.S. Sirpurkar]

New Delhi; May 16, 2008

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