Supreme Court of India
LIC OF INDIA AND ANR.versusCONSUMER EDUCATION AND RESEARCH CENTRE AND ORS. ETC.
- Citation
- 1995 INSC 367
- Decided
- 10 May 1995
- Disposal
- Dismissed
- Bench
- K RAMASWAMY
Holding
The clause limiting Table 58 term insurance to only government, semi‑government and reputed commercial employees is unconstitutional and violative of Article 14, and it is severable, leaving the remainder of the policy valid.
Summary
The Life Insurance Corporation (LIC) introduced a low‑premium term insurance policy (Table 58) but limited its availability to persons employed in government, semi‑government or reputed commercial firms. Several applicants were denied coverage and challenged the restriction as arbitrary and violative of Articles 14, 19(1)(g) and 21 of the Constitution. The Gujarat High Court struck down the restrictive clause, and LIC appealed. The Supreme Court held that the classification was unreasonable, discriminatory and contrary to the constitutional guarantee of equality, and that the clause could be severed from the rest of the policy. It affirmed that the policy, being a social‑security measure with a public element, is subject to judicial review under Article 226. Consequently, the Court dismissed the appeals, upheld the High Court’s declaration, and allowed the term policy to be offered to all eligible persons.
Issues considered
- The restriction of Table 58 term insurance to government, semi‑government and reputed commercial employees violates Article 14 (equality) and other fundamental rights.
- Whether the restrictive clause is severable from the rest of the policy.
- Whether a writ petition under Article 226 is maintainable against a public‑interest insurance policy.
- Whether actuarial considerations justify the discriminatory classification.
- Whether the insurer, as a public instrumentality, must conform its policy terms to constitutional principles.
Legislation cited
- Indian Contract Act, 1872s. 23
- Insurance Act, 1938s. 2(11)
Subjects
Article 14discriminationterm insurancepublic lawcontractual fairnessseverabilityconstitutional validityinsurancesocio‑economic justice
Judgment
LIC OF INDIA AND ANR. A
v.
~.
CONSUMER EDUCATION AND RESEARCH
CENTRE AND ORS. ETC.
MAY 10, 1995
B
[K. RAMASWAMY AND N. VENKATACHALA, JJ.] ·
' Constitution of India Article 14-Clause in term insurance policy
restricting it to persons employed in govemmen4 semi-government and reputed
commercial fimis-Held, clause unconstitutional--/ndian Contract Act, 1872 · C
S.23.
Constitution of India Article 14-LIC floating term insurance policy
with low premia but restricting availability to select class of persons-Held,
unreasonable arbitrary and violative of Article 14.
D
·. Constitution of India Article ii-Life Insurance policy-Held, ap-
propriate policy within the paying capadty of the insured is a social security
/
measure to make right to life meaningful; .Held further, while insurer free to
evolve policy based on brisiness principles, policy should be consistent with
constitutional animation. E
Constitution on India Article 226-f'ublic law-Writ petition challeng-
ing clause in term insurance policy of LIC-Held, action of LIC bears public
character with an imprint ofpublic interest element; writ maintainabl..-l'rac~
lice and procedure.
F
Life Insurance Corporation of India (LIC) introduced a term iu-
surance policy under Table 58 for terms of 5, 6 and 7 years, with substan-
\ tially low rates of premium intended to cater to a larger section of the
r population in the urban and rural areas. At the end of the term, in the
event of survival the assured would not get anything. In the event of death, G
• the nominee or the dependents would get the assured amount. However,
LIC restricted this term policy only to "persons in government or quasi· .· ·
government or in the service of reputed commercial firms". When LIC
turned down proposals for term insurance cover from the executive trustee
of the first respondent and certain others, they challenged, by way of writ
petitions in the Gujarat High Court the conditions imposed under Table H
349
'
350 SUPREME COURT REPORTS, (1995) SUPP.1 S.C.R ..
A 58 as being arbitrary discriminatory and violative of Articles 14, 19 (1) (g)
and 21 of the Constitution. While upholding the eligibility and other
• j
criteria laid down under Table 58, the High Court declared unconstitution·
al and struck down that part of the conditions which restricted the term
policy to a select class of persons. LIC as well as the writ petitioners
B appealed to this Court. ·
LIC contended that its policies were framed on actuarial considera·
lions and that the High Court was not justified in interfering "ith matters
based ou economic criteria. The writ petitions seeking to enforce contrac·
tual obligations were not maintainable. The respondents contended that
C LIC had no power to impose any unconstitutional conditions in the con·
tract; no classification much less a valid classification could be made of
employees in government semi-government, organised sectors or reputed.
commercial organisations on the one hand and those self· ·employed or in
unorganised sectors on the other.
D Dismissing the appeals, th~s Court
. HELD : 1: The offending clause extending the benefit only to the
salaried class in Government, semi-government and reputed firms is
unconstitutional. The declaration given, therefore, is perfectly valid. The ·
E offending part is severable from the rest of the conditions. The rest of the
conditions are valid and do not call interference. Subject to compliance
with other terms and conditions, the appellant is free to enforce Table 58
policy "ith all eligible lives. (382-C]
Gillespie Brother~ & Co. Ltd. v. Roy Bowles Transport Ltd., (1973] "
F ·Q.B•. 4oo;Central Inland Water Transport Corporation Ltd. v. Brojo Nath
Ganguly, (1986] 2 SCR 278; D.T.C. v. D.T.C. Mazdoor Congress, (1990] 1
Supp. SCR 142; V. Raghunadha Rao v. State of A.P. and Others, (1988) 1
Andhra Law Times; National Textiles Workers' Union E.tc. v. P.R. Ramak·
rishnan, (1983] 1 SCR 922; Workmen of Meenakshi Mills Ltd. v. Meenakashi
Mills Ltd., (1992] 3 SCC 336; Consumer Education & Research Centre v;
G Union of India, JT (1995); Dwarkanath v. Income Tax Officer, Kanpur,
[1965] 3 SCR 536; Andi Mukta Trust v. V.R. Rudani, (1989] 2 SCC 691;
Unni Krishnan v. State of A.P., (1993] 1 SCC 645; Hochitief Gammon v.
State of Orrissa, [1975] 2 SCC 649; MJ. Sivanf and Ors. v. State of Kar-
nataka, SLP No. 11012/1991 etC. dated April 17, 199S; Pr~ga Tools Corpn.
H v. CA. !manual, [1969] 1 SCC 585 and Comptroller & Auditor General of
Ll.C. v. CONSUMER EDN. AND RES. CENIRE 351
•
India v. K.S. Jagannathan, [1986] 2 SCR 17 at 36-40, referred to. · A
Chitti on Contract, 25th Edn., Vol. I; Anson's Law of Contract, P.6-7;
Todd D. Rakoff, 'Contracts of Adhesion' 1982-83, 95 Harvard Law Review
P.1174; M.A. Eisenberg, "The Bargain Principle and its Limits' (1982) 95
Har. L.R. page 441; Arthur leff, "Unconscionability of the Code" (1967) 115 ·
U. Pen. Law Review 485 at 494; M.P. Elinghaus, 'In defence of Uncon- B
scionability' (1968-69) 78 Yale Law Joumal Page 757 at 766, 767, referred
to.
2. Confining the policy under Table 58 to already covered salaried
sections would be unreasonable and arbitrary and would deprive large C
segme.nts in the rural areas or unorganised or self-employed and wo.uld be
unjust and irrational and unfair. (p.39) The classification based on
employment in. government, semi-goVernment and re:Puted commercial
· firms has the insidious and inevitable effect of excluding lives in vast.nrban ,
and rural sectors to have life insurance offending Article 14 of the Con-
.. stitotion and socio-economic ju~tice. [372-C, 371-D] D
Maneka Gandhi v. Union of India, [1978] 2 SCR 621, followed..
3.1. While the insurer is free to evolve a policy based on business
principles and conditions before floating the policy to the general public,·
insurance· being a social security measure should be consistent with the . E .
constitutional animation and conscience of socio-economic Justice
adumbrated in the Constitution. [364-E]
3.2. The appropriate life insurance policy within the paying capacity
and means or the insured. to pay premia is one of the social security
measures envisaged under the Constitution to make right to life meaning- F
fut, worth living and right to livelihood a means for sustenance. [363-E] ,
D.S. Nakara v. Union of India, [1983] 2 SCR 165; Olga Tellis v.
Bombay Municipal Coporation, [1985] . Supp. 2 SCR 51; CE.S.C Ltd. v•.
Subhash Chandra Bose, [1992] l SCC 441; Consumer Education & Research G :
Centre. v. Union of India, JT (1995) · 1 SC 637; Regi.onal Director, ES/
Coporation v. Francis De Costa, [1993] Supp; 4 SC 100 and Murlidhar .
1
Dayandeo Kesekar v. Vishwanath Pandu Brade, (C.A. No. 952{17) decide by
Snpreme Court on February 22, 1995, referred to.
4.1. LIC or any person or anthority in the field of insurance owe a H
'
352 . SUPREMECOURTREPORTS [1995JSUPP.1S.C.R.
A public duty to evolve their policies subject to such reasonable, and fair
terms and conditions accessible to all the segments of th~ society for
insuring the lives of eligible persons. [382-D]
4.2 •.The actions of the appellants bears public character with an
imprint of public interest element in their regarding terms and conditions
B mentioned in the appropriate table inviting the public to enter into contract
of life insurance. It is not pure and simple private law dispute without any
insignia of public element. Therefore, the writ petition was maintainable to
test the validity of the conditions laid in Table S8 term policy. (370-E-F]
'C M/s. Erusian Equipment & Chemicals Ltd. v. State of West Bengal,.
[197S] 1 SCC 70; Saghir Ahmad v. State of U.P., [199S] 1 SCR 707; A
Sanjeevi Naidu v. State of Madras, (1970] 3 SCR SOS; Ramana Dayaram .
Shetty v. International Airport Authority of India, [1979] 3 SCR 1014; Kasturi
· Lal Lakshmi Reddy v. State of l & K, (1980] 3 SCR 1338; M.C. Mehta v.
D Union of India, (1987] 1SCC395; UC v.Escort Ltd., [198SJ Supp. 3 SCR
909; Dwarkadas Marfatia & Sons ".·Board of Trustee of the Port of Bombay,
(1989] 2 SCR 7Sl; Mahabir Auto Stores v. India Oil Corporation, AIR .
(1990) SC 1031; Kumari Shrilekha Vidyarthi v. State of U.P., [1991] 1 SCC
212; Food ·corporation of India v. Mis Kaindhenu Cattle Feed Industries,
(1993] 1SCC71; Sterling Computers Ltd. v.M. & N Publications Ltd., (1993]
E 1SCC445 and Union of India v.M/s. Graphic Industries Co.,(1994] 5 SCC
398, referred to.
Genera/Assurance Society Ltd. v. Chandumall lain, (1966] 3 SCR SOO,
distinguished. · · ·
F
Benjamin Cardozo, 'Judicial Process'; Wade, Administrative Law, 5th ·
Ed. P. 513, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. mt of.
G 1994 Etc.
From the Judgment and Order dated 31.1.94 of the Gujarat High
Court in S.CA. No. 2614 of 1980.
Harish Salve, Rajiv Mehia, Kailash Vasdev ·and-Ms. Meenakshi
H Grover for the Appellants.
LI.C.v.CONSUMEREDN.ANDRES.CENIRE[K.RAMASWAMY,J.) 353
Rajiv Dhawan, Arvind Kr. Sharma and P.H.' Parekh for the Respon- A
dents.
_The Judgment of the Court was delivered by
K.RAMASWAMY, J. Leave granted. Delay condoned.
B
The appeal and cross appeal arise from the Division Bench judgment
of Gujarat High Conrt dated January 31, 1994 in Sp!. Civil Application No.
2614 of 1980. On August 25, 1980 one Prof. Manubhai Shah Executive
Trustees of Respondent No. 1 and Mr. D.N. Dalal sought policies under
Table 58. Similarly in December, 1978 Respondent Nos~ 2 to 4 sought .C
similar policies for convertible terms insurance plans for different amounts.
In September, 1980 Respondent Nos. 6 and 7 agents of the app.ellants when
presented proposals to the LIC under Table 58 on behalf of individual
i respondents and promised to cover under Table 58 other 9 crores unin~ . •
i sured household, the LIC turned them down. Consequently, after issuance
! of a nitice through counsel on September 14, 1980, the respondents filed , D
! the above writ -petition. The conditions imposed and . denial to accept
·i. ·policies sought under Table 58 were assailed as arbitrary, discriminatory
i violating Articles 14, 19(1)(g) and right to life in Article 21 of the Constitu-
tion. The High Court while upholding that prescription conditions for Isl /
· 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, < E
namely, 'Further, proposals for assurance under the piain will be enter-
tained only from persons in Government or Quasi-Government organiSa-
tion or a reputed commercial fir;,{ which call furnish details of leave taken
during the preceding year under Table 58' as subversive of eqiiality and,
. therefore, constitutional invalid. Accordingly, .it was strllck .down. The ._
Corporation filed the appeal against the portion that was struck down and · · F
the respondentS filed the cro~s appeal against the findings that went against
them. · ·· · ·
._
Sri Harish Salve, learned Senior counsel for LIC contended that the
acceptance of the proposals by the insurer in Life In5urance business, the - G
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 in-
surance and acted upon. No rights would flow to any pa'rty to the 'proposal · H
354 SUPREME COURT REPORTS (1995] SUPP. 1 S.C.R.
A to challenge the policy, its terms and plain of insurance. The writ petition
under Article 226 of the Constitution is not maintainable to enforce con-
stitutional 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 these interested in obtaining a par-
B ticular policy and their viability. The High Court was not justified in
interfering with matters based on economic criteria and commercial con-
tracts, 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.
c
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
D 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
E 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
F policy. These are again sub-divided into various plans of insurance. All
policy holders under Table 58 have been treated as a class. Several condi-
tions 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
G contained therein are reasonable. There is no invidious discrimination
meted out to the respondents. It is open to the policy holders to have term
policy converted into endowment or whole life policy., The policy of
denying convertible risk, policy to female lives before the expiry of two
years of the term policy, all eligible persons are entitled to convert them
H into whole life policy or endowment policy before expiry of two years. The
L.l.C. v. CONSUMER EDN. AND RES. CENTRE [K. RAMASWAMY, J.) 355
premium payable on the term policy is very marginal to benefit such of A
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 uncon-
stitutional.
B
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 Ill and the Directive
Principles of the Constitution which assure livelihood. This Court inter- C
preted 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 interpreta- D
lion 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 in-
cluding term policy. Age was extended from 45 to 50 years. Similarly the
respondent, though is doing life insurance business, its policies must be in
confirmity with the rights in Parts III and IV of the Constitution. It has no E
power to impose any unconstitutional conditions in the contract, no clas-
sification much less valid classification has been made between salaried
employees in Government, Semi-government, organised sectors or reputed
commercial organisations, self- employed or unorganised sectors. The term
insurance policy being cheaper premium helps large segments of poor and F
lower middle class persons. Sezhivan Committee on improvement of In-
surance, 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 G
down by the High Court are therefore, unconstitutional and impermissible.
We have given our anxious and careful consideration to the respec-
tive contentions, since our answers to the questions involved are bound to
have far reaching effect on the business of life insurance, we have minutely H
356 SUPREME COURT REPORTS (1995] SUPP. 1 S.C.R.
A 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. Jt 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
B personal history i.e., record of illness suffered in the past by the person
whose life has to be insured, risks to be covered and the person's habits in
general; (c) family history, i.e., record of health and longevity of members
of the family of the person to be insured; (d) occupation and environment
of the person whose life has to be insured; and (e) the likelihood of any
change in the occupation of the person whose life has to be insured,
C 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
D 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
E 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 LI C on insurance recommended in the year 1980 for improvement
F 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.l(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
G 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 in-
surance to savings inherent in the conventional individual assurance plans
and the LIC's concentration on this type of business together, had the
H effect of denying life insurance cover to the vast section of the people who
L.I.C. v. CONSUMER EDN. AND RES. CENTRE [K. RAMASWAMY, J.] 357
'··
· do not have regular income and whose savings potential is low; (iii) as a 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 LI C
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, B
as it is in U.K., provided the LIC is enabled to improvement substantially
the yield on its investment and to control effectively its expenses of manage-
ment. In para 13.18, the report further states that "there is one other 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 C
Actuaries had recommended introduction of such a plan ..................... .
Therefore, the term insurance policy introduced, though based on calcula-
tions 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 D
is beneficial to all sections and restricted to lives in specified area alone.·
The original clause in Table 58 reads thus :
"The rates of premium herein apply to male lives who, on the basis
of the medical examiner's report, personal and family history etc. E
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 Govern-
F
ment 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 ex- G
amination is obtained. The cost of the medical examination will
have to be borne by the proposer.
Minimuni sum assured
The minimum amount for which policy will be issued under this H
358 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.
A plan is Rs. 5,000.
Tenn of Assurance.
Policy under this plan will be issued for a term of 5, 6 and 7 year
only.11
B
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 4.'l year to 50 years; (iii) incorporated
the term of five years to proposal in the age group of 46 to 50 years; and
C (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
followir.g picture would emerge :
D
"PREMIUM PER THOUSAND PER YEAR FOR PROPONENT
AGED 20 YEARS
TABLE PREMIUM PAYING TERM PER 1000 YEAR
5 YEARS 6 YEARS 7 YEARS
E 58 (Convertible
Term Assu- Rs. 4.80 Rs. 4.70 Rs. 4.65
ranee)
14 (Endowment
Rs. 217.15 Rs. 179.40 Rs. 152.65
with profit)
F 11 (Endowment
Rs. 188.90 Rs. 152.00 Rs. 126.00
without profit)"
The premium payable to the term insurance at the age of 20, 25, 30,
35, 40, 45 year is as disclosed in the Table given by the appellants thus :
G
SPECIFIED TERMS
Age nearer 5 Years 6 years 7 years
Birthday (In rupees and paise)
20 4.80 I 4.70 4.65
H I
L.I.C. v. CONSUMER EDN. AND RES. CENTRE [K RAMASWAMY, J.] 359
25 4.95 4.90 4.90 A
30 5.50 5.50 5.50
35 6.50 6.55 6.65
40 8.70 8.90 9.10
45 12.45 - - B
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 C
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 terms
insurance policy was brought into vogue. In fact, this policy appears to be D
very popular even in the United States of America as per the material
furnished before 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 E
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 F
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 G
he survives. On his death, the nominee or the dependents will get the
assured amount but it cold be seen that the capacity to pay the premium
would also be a relevant factor.
The premium for Rs. 1000 under the policy as per the Table fur-
nished would indicate as under : H
360 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.
A TABLE : SHOWING DIFFERENCES IN PREMIA
(Premia per 1000)
Convertible Term Policy
Age Whole Life
Life 5 Years 6 years 7 years
B 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
C It will thus be 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 :
D Term Policy
Whole
Age Policy Convertible
Life 5 yrs. 6 yrs. 7 yrs.
35 Rs. 50,000 Rs. 912.50 897.50 325 327.50 332.5
It will, thus, be clear that the term Policy is a demonstrably cheap
E and efficacious short term policy and held those badly in need of
it.
From this material matrix, the question emerges whether the appel-
lant is justified in law in restricting the term policy to the specified class,
F 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 citizen in matters of equality of
status and of opportunity with assurance to dignity of the individual. Article
14 provides equality before law and its equal protection. Article 19 assures
freedoms with right to residence and settlement in any part of country and
G 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,
H to provide facilities and opportunities among the individuals and groups of
L.l.C. v. CONSUMER EDN. AND RES. CENTRE [K RAMASWAMY, J.] 361
the people living in any part of the country and engaged in any avocation. A
Article 39 assures to secure and 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 B
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 in duding food, clothing, housing
and medical care and necessary social services and the right to security in C
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 and Social 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 D
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, E
[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 F
of establishing a socialist welfare society. While examining the constitution-
al validity of legislative/administrative action, the touchstone of the Direc-
tive Principles 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 includes right to livelihood because no G
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 deprivatiqn
would not only denude the life of its effective content and meani'ngfulness H
362 SUPREME COURT REPORTS (1995J SUPP. l S.C.R. •
A 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
Covenant of Economic, Social and Cultural Rights, one of us (K. Ramas-
B wamy, J.) in C.E.S.C. Ltd. v. Subhash Chandra Bose, [1992J 1 SCC 441 at
p. 462 in para 30, held that the right to social justice is a fundamental rigbt.
Rigbt 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
C to life and dignity of person and status without means are cosmetic rights.
Socio-economic rights are, therefore, basic aspirations 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 econoinic justice is a fundamental
right". In paragraph 32, it was further held that the "right to medical care
D 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 existence but also robust health and vigour
E 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 of bread winner 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
F provided to protect the heath 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
G 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, ES/ Corporation
v. Francis De Costa, [1993J Supp 4 SCC 100 at 105, the same view was
stated. Security against sickness and disablement is fundamental right
H under Article 25 of the Universal Declaration of Human Rights and Article
- L.l.C. v. CONSUMER EDN. AND RES. CENTRE [K. RAMASWAMY, J.] 363
7(b) of International Convention of Economic, Social and Cultural Rights A
and under Articles 39(e), 38 and 21 of the Constitution of India. Employees
State Insurance Act seeks to provide succour 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.
B
952177 on February 22, 1995, this Court held that right to economic
empowerment to the poor, disadvantaged tribes and depressed and op-
pressed 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 par-
ticipatory democracy and a truism for unity and integrity of Bharat. c
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
D
.... class and lower middle class and all affordable people. Life insurance
coverage is against disablement or in the event of death of the insured
economic support for the dependents, social security to livelihood to the
insured or the dependents. The appropriate life insurance policy within the
paying capacity and means of the insured to pay premia is one of the social
security measures envisaged under the Constitution to make right to life E
meaningful, worth living and right to livelihood a means for sustenance.
The question, therefore, is whether the appellant is free to incor-
porate as a part of its business principles, any term of it choice. It is true
that the appellant is entitled to accept insurance policy from a person F
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-govern-
ment or reputed commercial firms and whether such condition is just, fair
..,. and reasonable or based on reasonable classification consistent with Ar- G
tides 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 H
A
364 SUPREME COURT REPORTS [1995] SUPP.1 S.C.R.
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 lhe essential terms of the proposal. Therefore, writ petition is not
B maintainable lo 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
C 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 clauses (a) to ( c) thereof. Thereby, the contract of insurance
is hedged with bilateral agreement on human life upon payment of premia
D subject to the covenants 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
E 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 socio-economic justice adumbrate in the
Constitution as elucidated hereinbefore.
p 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 because it is
G the Government which trading with the public and the democratic form of
Government demands equality and absence of arbitrariness and dis-
crimination in such transaction. 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
H procedure. Exclusion of a member of the public from dealing, prevents him
L.I.C. v. CONSUMER EDN. AND RES. CENTRE [K. RAMASWAMY, J.] 365
from entering into lawful contractual reliitions and discriminates him in A
favour of other people. Though the state is entitled to imposed reasonable
conditions but arbitrary conditions prevents entering into contractual rela-
tions 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
observed certain aspects of rules of natural justice. The legitimate expec- B
talion 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 the earliest buried fathoms deep that the State is free to carry on C
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 Dayal'am Shetty
v. Intemational Airport Authority of India, [1979] 3 SCR 1014, another D
Constitution Bench held that in a welfare State in regulating and dispensing
special services contracts, the citizen derives rights or privileges by entering
into favourable relations with the Government. The Government, there-
fore, 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 E
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 F
to have constitutional conscience which makes governmental agencies
whatever their mien amenable to constitutional 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 G
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 challenges are
thrown open, the law must grow as a social engineering to meet the H
366 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.
A challenges and every endeavour should be made to cope with the contem-
porary 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 Cardozon
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
B pass the Judges idle hy".
Every action of the public auth01 ity or the person acting in public
interest or its acts give rise to public element, should be guided by public
interest. It is the exercise of the public power or action hedged with public
C 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
D 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 :
E "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,
F 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
G 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 :
-
H "All the remedies mentioned are then made interchangeable by
L.I.C. v. CONSUMER EDN. AND RES. CENTRE [K. RAMASWAMY, J.] 367
being made available 'as an alternative or in addition' to any of A
them. Jn addition the Court may award damages, if they are
claimed at the outset and if they could have been awarded in an
ordinary action. 11
The distinction between private law and public law remedy is now settled B
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 obligation or
obligations arising out of the Court (contract sic) the Court may
not ordinarily examine unless the action has some public law C
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 D
precession and we do not want to attempt it. The question must
be decided in each case with reference to the particular action,
the activity in which the State or the instrumentality of the State
is engaged when performing the action, the public law or private
law character of the action and a host of other relevant circumstan-
ces." E
In Dwarkadas Marfatia & Sons v. Board of T1ustees of the Port of
Bombay, (1989] 2 SCR 751, it was held that the Corporation must act in
accordance ~th certain constitutional conscience and whether they have
so acted must be discernible from the conduct of such Corporations. Every F
activity of public authority must be informed by reasons and guided by the
public interest. All exercises 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 G
under Article 226 that the action of the port trust was arbitrary and no
·public interest would be served by terminating the tenancy. Jn· 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 H
368 SUPREME COURT REPORTS (1995] SUPP. 1 S.C.R.
A 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 C01poration, AIR (1990) SC 1031,
it was held that the State when acting in its executive power, enters into
B 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 discrimina-
C tion, 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
D relevance and reasonableness, fair play and natural justice, equality and
non-discrimination. It is well settled that there can be "malice in Jaw". 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 Jaw and
must be supported by reasons and it should meet the test of Article 14.
E 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
F adjudication of the dispute arising out of a contract would, therefore,
depend upon facts and circumstances in a given case. The distinction
between public law remedy and private law field cannot be demarcated
with precision. Each case will be examined on its facts and circumstances
to find out the nature of the activity, scope and nature of the controversy.
The distinction between public law and private law remedy has now
G become too thin and practicably obliterated.
In the sphere of contractual relations the Stace, its instrumentality,
public authorities or those whose acts bear insignia of public element,
action to public duty or obligation are enjoined lo act in a manner i.e. fair,
H just and equitable, after taking objectively all the relevant options into
1
L.LC. v. CONSUMER EDN. AND RES. CENTRE [K. RAMASWAMY, J.] 369
consideration and in a manner that is reasonable, relevant and germane to A
effectuate the purpose for public good and in general public interest and
•.
~
it must not take any irrelevant or irrational factors into consideration or
appear 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 B
guided by the public interest.
Jn Kumari Sluilekha Vzdyarathi v. State of U.P., (1991] l SCC 212, this
Court in paragraph 22 pointed out that the private parties are concerned
only with their personal interest but the public authority arc expected to
act for public good and in public interest. The impact of every action is C
also on public interest. It imposes public law obligation and impresses 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 D
their_ rights by resort to remedies provided for adjudication of purely
contractual disputes. However, lo the extent, challenge in 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 E
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 non-arbitrariness at the hands of the State
in any of its actions". In Food Corporation of India v. Mis Kamdhenu Cattle F
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 G
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 Publi-
cations Ltd., [1993] 1 SCC 445 at page 464 para 28, it was held that even
in con1mercial contracts where there is a public element, it is necessary that
relevant considerations are taken into account and the irrelevant considera- H
370 SUPREME COURT REPORTS (1995] SUPP. 1 S.C.R.
A tion discarded. In Union of India v. M/s. Graphic ll!dustries 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. Cha11-
B dumul/ Jai11, [1966] 3 SCR 500, relied on by the appellants that tests laid
therein to construe the terms of insurance contracts bears no relevance to
determine the constitutional conscience of the appellant in fixing the terms
and conditions in Table 58 and of their justness and fairness on the tough
stone of public element. The arms of the High Court is not shackled with
technical rules of procedure. The actions of the State, its instrumentality,
C 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
D 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 fmd out the
nature of the activity or scope and nature of the controversy. The distinc-
tion between public law and private law remedy is now narrowed down.
The actions of the appellants bears public character with an imprint of
E public interest element in their offers regarding 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
F 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
cla'8ification. The salaries group of lives from the government, semi-
government or reputed commercial institutions ·form a class with a view to
G identify the health conditions, the policy was applied to that class of lives.
No Mandamus would be issued to declared the classification as unconstitu-
tional when it bears reasonable nexus to the object and there intelligible
differentia between the salaries lives and the rest. The High Court, there-
fore, was wrong in declaring the offending clause as arbitrary violating
H Article 14. It is true that the appellant is entitled to issue the policy
L.l.C. v. CONSUMER EDN. AND RES. CENTRE [K RAMASWAMY, J.] 371
applicable to a particular group or class of lives entitled to avail contract A
of issuance 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 B
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 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 C
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 com-
mercial firms has the insidious and inevitable effect of excluding lives in
vast rural and urban areas engaged in unorganised or self- employed D
sectors to have life insurance offending Article 14 of the Constitution and
socio-economic justice.
It is true that the appellants in order to successfully operate the life
insurance plan need to forecast mortality among the insured lives within a E
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 F
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 indicator of the good health of the concerned proposed policy
holders. It would appear that the appellants have adopted a soft and easy G
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 H
372 SUPREME COURT REPORTS (1995] SUPP. 1 S.C.R.
A policy and continue to pay the premium would ensure 'llCial 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 volitional it may not
be difficult for the people in other private sector, unorganised sector etc.
B
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 unorgainsed sectors. Confining the policy under
Table 58 to already covered salaries sections would, therefore, be un-
C reasonable and arbitrary and would deprive large segments in the rural
areas or unorganiscd or self-employed would be unjust and irrational and
unfair.
An unfair and untenable or irrational clause in a contract is also
D unjust and amendable to judicial review. In common low 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 constru-
ing the indemnity clause in a contract questioned that are the courts to
permit party to enforce his unreasonable clause, even when it is so un-
reasonably, as lo be unconscionable, and stated :
E
"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
F 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 inade-
quate, when his bargaining power is grievously impaired by reason
G of his own needs or desires, or by his own ignorance or infirmity......
the one who stipulates for an unfair advantage may be moved solely
by his own self-interest, unconscious of the distress he is bringing
to the other ....... One who is in extreme need may knowingly
consent to a most improvident bargain, solely to relieve the strains
H in which he finds himself. It would not be mean to suggest that
L.l.C. v. CONSUMER EDN. AND RES. CENTRE [K RAMASWAMY, J.] 373
every transaction is saved by independent advice. Bu!'the absence A
of it may be fatal. In A. Schroeder Music Publishing Co. Ltd. v.
Macaulay (Fonner/y bistone), (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 B
unfairness of the bargain to relieve a party from the contract when
the relative bargaining power of the parties was not equal. In that
ease 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 C
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 D
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 E
terms on which they are obtainable. Take it or leave it." In Levison
andAnr. 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 F
Transpo1t Ltd., (1980) AC. 827, considering the Unfair Contract
Terms Act, 1977, Lord Wilberforce during the course of his speech
emphasised the unequal bargaining power as an invalidating factor
upheld the contract in that case since it was commercial bargain
between two competent party to enter into a contract on equal
bargaining power. Lord Deplock also reiterated his earlier view. G
Lord ·scarman agreeing with Lord Wilberforce described that a
commercial dispute between the parties we11 able to look after
themselves, in such a situation that the parties have agreed express-
ly or impliedly is what matters; and the duty of the courts is to
construe their contract according to their tenor. It was held that H
374 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.
A in that case that parties have equal bargaining power and inter-
vention 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 contact when the party has no equal bargaining
power.
B 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
C 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
D 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 push the weak to the
wall? Should they be allowed to ride roughshod over the weak?
Should the courts roughshod over the weak? Should the courts sit
back and watch supinely while the strong trample under 5 foot the
E rights of the weak? We have a Constitution for our country. Our
Judges are bound by their oath to "upheld 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
F 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,
G or an unfair and unreasonable clause in a contract, entered into
between parties who are not equal in bargaining power. It is
difficult given an exhaustive list of all bargains of this type. No
court can visualize the different situations which can arise in the
affairs of men. One can only attempt to give some illustrations. For
H instance, the above principle will apply where the inequality of
L.l.C. v. CONSUMER EDN. AND RES. CENTRE [K. RAMASWAMY, J.] 375
'
bargaining power is the result of the gre'at disparity inthe economic A
strength of the contacting 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 services or means of
livelihood only upon the terms imposed by the stronger party or B
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 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 C
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 or-
ganisations and with the State through its instrumentalities and D
agencies entering into almost every branch of industry and com-
merce, there can be myriad situations which result in unfair and
unreasonable bargains between parties possessing wholly dis-
proportionate 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. 11 E
In was held that rule giving power to terminate the services of the per-
manent 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. F
considered similar contract of service whether consistent with the Constitu-
tion. 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 con-
tracting parties. Though as idem is assumed, the standard form contract is G
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 it
today's complex world of giant corporations with their vast infra-structural
organisations and with the State, through its instrumentalities and agencies H
376 SUPREME COURT REPORTS [1995] SUPP.1 S.C.R.
A has been entering into almost every branch of industry and commerce and
field of service. There can be myriad situations which result in unfair and
unreasonable bargain between parties possess wholly disproportionate and
unequal bargaining power. The court must judge each case on its own facts
and circumstances. While approving the ratio in Brojonath's case per
B 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 sur-
veyed the development of the standard form of contracts. The social
C 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
D knowing 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."
E At page 1193, it was further stated that :
"In the last decade or two, courts analyzing contracts of ad-
hesion 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
F concerning business affected with a public interest and transactions
tainted by economic duress.
At page 1215, he further stated :
"The problems in Leffs and Slawson's analyses are fundamen-
G tal, 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 11 Public 11 issue can be found in the mere presence
H of a mass transaction, there appears to be no reason to let a private
L.l.C. v. CONSUMER EDN. AND RES. CENTRE [K RAMASWAMY, J.] 377
party stipulate any form terms. Efforts to overcome this problem A
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 rit!!als that en- B
courage consideration: of the public interest."
In Chapter IV, "Toward the Development of New Doctrine", at page
1249 he states that there exists :
"Gross inequality of bargaining power" or the like (in the usual C
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 D
role of the drafting party and adherent is available in equal terms is the
test. The doctrine of unequal bargaining power, the doctrine of uncon-
scionability "unjust in some sense 11 , etc., considered and formulated
doctrines for applying the amended 211 Restatement (second) of con-
tracts. E
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 :
F
"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 G
• promise is enforceable at all. He further quoted Aurthor Leff analysing the
distinction between procedural and substantive unconscionability. Proce-
dural unconscionability is fault on unfairness in the bargaining process and
substantive unconscionability is fault or unfairness in the bargaining out-
come-that is, unfairness of terms. Quoting s.208 of the Restatement
(Second) of Contracts, he stated at page 752 that : H
378 SUPREME COURT REPORTS (1995) SUPP. 1 S.C.R.
A "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 ap-
1
propriate cases, fairness of terms.'
He further states that :
B
"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 :
c
"Whether the clauses involved are so one-sided as to be uncon-
D
scionable under the circumstances existing at the time of making
of the contract - The principle is one of the prevention of oppres-
sion and unfair surprise - and not of disturbance 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 explains and jus-
E tifies the limits that should be placed upon the bargain principle
on the basis of the equality of a bargain."
At page 800, he stated that :
"The paradigma (unconscionability) must be articulated and
F extended through the development of more specific norms to guide
the resolution of specified cases, provided 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
G not provided much help once the relatively obvious norms of
unconscionability, such as unfair surprise, have been articulated.
Development of more specified 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
H effort that can be guided in part by the reconstruction and exten-
L.l,C. v. CONSUMER EDN. AND RES. CENTRE [K. RAMASWAMY, J.] 379
sion of existing contr3ct doctrines." A
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 B
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 C
page 757 at 766 stats that -
"The relevance of the respective bargaining positions of the
parties to the issue of nnconscionability is beyond dispute, although
to ask the draftsman for a comprehensive statement of precise
D
-
nature and scope of this relevance."
He stated further at page 767 that bargains
11
S.truck between seeming equals which, on closer investigation,
turn out lopsided because of particular circumstances of the case."
E
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 7740. He ends up his discussion at page 814 that the doctrine
of "un'conscionability is a residual category of shifting content and expan-
sible nature. 11
F
In V Raglmnadha Rao v. State of A.P. and Others,(1988) 1 Andhra
Law Times 461, the Andhra Pradesh High Court considered the con-
stitutionality of Clauses 11, 29, 59, 62(b) and 73, the AP. Standard
Specification 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
G
arbitrary and ultravirus of the Constitution.
It is, therefore, the settled law that if a contract or a clause in a
contract is found unreasonable or unfair or irrational one must look to the
relative bargaining power of the contracting parties. In dotted line con- H
380 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.
A tracts 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. He option would
be either to accept the unreasonable or unfair terms or forego the service
forever. With a view lo have the services of the goods, the party enters into
a contract with unreasonable or unfair terms contained therein and he
B would be left with no option but to sign the contract.
Jn National Textiles Workm" Union Etc. v. P.R. Ramkiishnan, [1983]
1 SCR 922, the constitution bench per majority held that the socio-
economic objects set down in the directive principles of the Constitution
C 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. Jn Workinen of
Meenakshi Mills Ltd. v. Meenakshi Mills Ltd., [1992] 3 SCC , 336, the right
-
D 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(l)(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
E 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 private persons or industry are bound by the
F directive contained in Part IV, Part III and the Preamble of the Constitu-
tion. 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 Econornic and Ct'lltural
right and the Convention on Right to development for socio-economic
justice. Social security is a facet of socio-economic justice to the people
G and a means to livelihood.
Since medical report is admittedly a condition precedent for accep-
tance of the proposal, it would be open to the appellants to ~ave the
medical report from its recognised or accredited doctors. On its satisfac-
H tion of the health condition of the proposed life to be insured, it would be
L.l.C. v. CONSUMER EDN. AND RES. CENTRE [K RAMASWAMY, J.] 381
open to the appellants to accept or reject, as the case may be, the proposal. A
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 th'e country vide Dwm*anath v. Income Tax Officer, Kanpur, [1965] 3 B
SCR 536 at 540, Andi Mukta Tntst v. VR. 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 01issa, [1975] 2 SCC 649 at 656. In M.J.
Sivani and Others v. State of Kamataka, 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 C
not severable from the rest of the notification and the whole notification
must be declared to be ultra vires or inapplicable to video games. Rejecting
the contention of the licensees on that ground, this Court held that the
entire order did not become invalid due to inapplicability of a particular
provision or a clause in the general order unless the invalid part is inex- D
tricably 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 the case Para
3(2) of the notification for licencing pnblic places or the places of public E
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 Co1p11. v. CA. !manual, [1969) 1 SCC 585 at 589, this F
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.VR. Rudani, [1989) 2 SCC 691, and U1111ik1islma11 v. State of A.P., [1993]
1 SCC 645. In Comptroller & Auditor General of India v. KS. Jaga1111atha11,
[1986J 2 SCR 17 at 36-40, this Court held that a mandamus would be issued G
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 H
382 SUPREME COURT REPORTS (1995] SUPP. 1 S.C.R.
A 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 dis-
B criminatory offending Article 14. Denial thereof to larger segments violates
their constitutional rights. We are of the considered view that they arc
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 do not call for interference. The offending clause extending
the benefit only to the salaries class in Government, semi-Government and
C 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
D 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
E eligibility conditions must be conformable to the Preamble, fundamental
rights and the directive principles of the Constitution. The terms policy
under Table 58 is declared to be accessible and beneficial to the large
segments of the Indian society. The rates of premium must also be
reasonable and accessible. Accordingly, we hold that the declaration given
by the High Court is not vitiated by any manifest error of law warranting
F 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
G are directed to bear their own costs.
S.M. Appeal dismissed.
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Article 14"Sign in to search