Holding

An exclusion clause that defeats the object of an insurance contract is unfair, must be read down or severed, and the insurer cannot rely on it when it has not been properly disclosed, rendering the clause void and entitling the consumer to compensation.

Summary

The appellant, Texco Marketing Pvt. Ltd., bought a fire insurance policy from Tata AIG that excluded coverage for basement premises, yet the insured shop was located in a basement. After a fire, the insurer denied the claim relying on the exclusion clause. The State Consumer Commission held the insurer liable for deficiency of service and unfair trade practice, but the National Commission reversed that decision, upholding the exclusion. The Supreme Court held that an exclusion clause that defeats the main purpose of an insurance contract is unfair, must be read down or struck out, and the insurer has a heightened duty of disclosure and good faith. Consequently, the National Commission's order was set aside, the insurer was ordered to pay compensation (except a Rs 2.5 lakh award for harassment), and the appeal was partly allowed. The Court emphasized the doctrine of blue‑pencil and the consumer‑friendly provisions of the Consumer Protection Acts.

Issues considered

The validity and enforceability of an exclusion clause that destroys the main purpose of an insurance contract.
Whether the insurer’s failure to disclose the exclusion clause amounts to deficiency of service and unfair trade practice under the Consumer Protection Acts.
Whether the National Consumer Disputes Redressal Commission erred in relying on the exclusion clause despite findings of unfairness.
The applicability of the doctrine of reading down/blue‑pencil to strike out the offending clause.
The entitlement to compensation under Section 14 of the Consumer Protection Act, 1986.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11(6)
Consumer Protection Act, 1986s. 14, s. 14(d), s. 14(f), s. 21(A), s. 2(1)(g), s. 2(1)(r), s. 3
Consumer Protection Act, 2019s. 2(46), s. 2(47), s. 47, s. 49, s. 58, s. 59
Consumer Protection Regulations, 2005
Indian Contract Act, 1872s. 10, s. 17, s. 18, s. 19, s. 2
Insurance Regulatory and Development Authority (Protection of Policy Holders’ Interests) Regulations, 2002s. Clause 3(ii), s. Clause 3(iv), s. Clause 4

Subjects

exclusion clauseinsurance contractadhesion contractunfair trade practiceconsumer protection actduty of disclosuregood faithblue pencil doctrinecontract voidabilitycompensation

Judgment

[2022] 9 S.C.R. 1031 1031

M/S TEXCO MARKETING PVT. LTD. A
v.
TATA AIG GENERAL INSURANCE COMPANY LTD. & ORS.
(Civil Appeal No. 8249 of 2022)
NOVEMBER 09, 2022 B
[SURYA KANT AND M. M. SUNDRESH, JJ.]
Consumer Protection Act, 1986 – ss. 2(1)(g), 2(1)(r), 3 & 14
– Consumer Protection Regulations, 2005 – Consumer Protection
Act, 2019 – ss. 2(46), 2(47), 47, 49 & 59 – Insurance Regulatory
C
and Development Authority (Protection of Policy Holders Interests)
Regulations, 2002 – Insurance Claim – Repudiation of – Exclusion
Clause – Appellant secured a Standard Fire and Special Perils policy
from the respondent on 28.07.2012 – Policy was effective from
28.07.2012 to 27.07.2013 and it was meant to cover a shop situated
in the basement of the building – However, the exclusion clause of D
the contract specified that it did not cover the basement – Shop met
with a fire accident for which the appellant raised a claim – Claim
was repudiated by the respondent, taking umbrage under the
exclusion clause – On challenge, State Consumer held that there
was no adequate disclosure and the insurer was deficient in service
E
and indulged in unfair trade practice – National Commission
overturned the order passed by the State Commission by placing
reliance upon the exclusion clause – Whether an exclusion clause
destroying the very contract knowingly entered, can be permitted
to be used by a party who introduced it, becomes a beneficiary and
then to avoid its liability–Held: An exclusion clause has to be F
understood on the touch-stone of the doctrine of reading down in
the light of the underlining object and intendment of the contract –
It can never be understood to mean to be in conflict with the main
purpose for which the contract is entered – It is the foremost duty of
the insurer to give effect to a due disclosure and notice in its true
G
letter and spirit – Once, the State Commission or the National
Commission, as the case may be, comes to the conclusion that the
term of a contract is unfair, particularly by adopting an unfair trade
practice, the aggrieved party has to be extended the resultant relief
– Once it is proved that there is a deficiency in service and that
respondent knowingly entered into a contract, notwithstanding the H
1031
1032 SUPREME COURT REPORTS [2022] 9 S.C.R.

A exclusion clause, the consequence would flow out of it – As per the
common law principle of acquiescence and estoppel, respondent
cannot be allowed to take advantage of its own wrong.
Contract Act, 1872 – ss. 2, 10, 17, 18 & 19 – Adhesion
contracts/Standard Form of Contract – Insurance Contract – These
B contracts are prepared by the insurer having a standard format
upon which a consumer is made to sign – The insurer who, being
the dominant party dictates its own terms, leaving it upon the
consumer, either to take it or leave it - Such contracts are obviously
one sided, grossly in favour of the insurer due to the weak bargaining
power of the consumer.
C
Doctrine of Blue Pencil – Discussed.
Partly allowing the appeal, the Court
HELD: 1.1 Adhesion contracts are otherwise called
Standard-Form Contracts. Contracts of Insurance are one such
D category of contracts. These contracts are prepared by the insurer
having a standard format upon which a consumer is made to sign.
He has very little option or choice to negotiate the terms of the
contract, except to sign on the dotted lines. The insurer who,
being the dominant party dictates its own terms, leaving it upon
E the consumer, either to take it or leave it. Such contracts are
obviously one sided, grossly in favour of the insurer due to the
weak bargaining power of the consumer. The concept of freedom
of contract loses some significance in a contract of insurance.
Such contracts demand a very high degree of prudence, good
faith, disclosure and notice on the part of the insurer, being
F different facets of the doctrine of fairness. Though, a contract of
insurance is a voluntary act on the part of the consumer, the
obvious intendment is to cover any contingency that might happen
in future. A premium is paid obviously for that purpose, as there
is a legitimate expectation of reimbursement when an act of God
G happens. Therefore, an insurer is expected to keep that objective
in mind, and that too from the point of view of the consumer, to
cover the risk, as against a plausible repudiation. [Paras 9 &
10][1040-E-H]
1.2 An exclusion clause in a contract of insurance has to be
interpreted differently. Not only the onus but also the burden
H
M/S TEXCO MARKETING PVT. LTD. v. TATA AIG GENERAL 1033
INSURANCE COMPANY LTD. & ORS.

lies with the insurer when reliance is made on such a clause. A
This is for the reason that insurance contracts are special
contracts premised on the notion of good faith. It is not a leverage
or a safeguard for the insurer, but is meant to be pressed into
service on a contingency, being a contract of speculation. An
insurance contract by its very nature mandates disclosure of all
B
material facts by both parties. An exclusion clause has to be
understood on the touch-stone of the doctrine of reading down in
the light of the underlining object and intendment of the contract.
It can never be understood to mean to be in conflict with the
main purpose for which the contract is entered. A party, who relies
upon it, shall not be the one who committed an act of fraud, coercion C
or mis-representation, particularly when the contract along with
the exclusion clause is introduced by it. Such a clause has to be
understood on the prism of the main contract. The main contract
once signed would eclipse the offending exclusion clause when it
would otherwise be impossible to execute it. A clause or a term
D
is a limb, which has got no existence outside, as such, it exists
and vanishes along with the contract, having no independent life
of its own. It has got no ability to destroy its own creator, i.e. the
main contract. When it is destructive to the main contract, right
at its inception, it has to be severed, being a conscious exclusion,
though brought either inadvertently or consciously by the party E
who introduced it. [Paras 11 & 12][1041-A-E]
Duty of Disclosure, Good Faith and Notice
1.3 The principles governing disclosure, good faith and
notice are founded on the common law principle of fairness. These
principles are meant to be applied with more rigour in standard F
form contracts such as insurance contracts. Such an application
is warranted much more when we deal with an exclusion clause.
A very high standard of good faith, disclosure and due compliance
of notice is required on the part of the insurer, keeping in view
the unique nature of an insurance contract. An act of good faith G
on the part of the insurer starts from the time of its intention to
execute the contract. A disclosure should be a norm and what
constitutes a material fact requires a liberal interpretation. It is
only when an insurer is not intending to act on an exclusion clause,

H
1034 SUPREME COURT REPORTS [2022] 9 S.C.R.

A the aforesaid principles may not require a strict compliance. The
three elements are interconnected and overlapping. It is the
foremost duty of the insurer to give effect to a due disclosure
and notice in its true letter and spirit. When an exclusion clause
is introduced making the contract unenforceable on the date on
which it is executed, much to the knowledge of the insurer, non-
B
disclosure and a failure to furnish a copy of the said contract by
following the procedure required by statute, would make the said
clause redundant and non-existent. [Paras 14 & 15][1044-A-E]
Doctrine of Blue Pencil
C 1.4 In such a situation, the doctrine of “blue pencil” which
strikes off the offending clause being void ab initio, has to be
pressed into service. The said clause being repugnant to the main
contract, and thus destroying it without even a need for
adjudication, certainly has to be eschewed by the Court. The very
existence of such a clause having found to be totally illegal and
D detrimental to the execution of the main contract along with its
objective, requires an effacement in the form of declaration of its
non-existence, warranting a decision by the Court accordingly.
[Para 22][1049-D-E]
2. The consumer under the Consumer Protection Act, 1986
E is at an elevated place than the plaintiff in a suit. A dispute before
the Consumer Commission is to be seen primarily from the point
of view of the consumer as against the civil suit. It is only to
avoid any possible bottleneck in granting the relief. The
jurisdiction of the Commission has been clearly demarcated,
F being in addition to any other laws in force as stipulated under
Section 3 of the 1986 Act. The Act being a self-contained one,
requires to be strengthened by the procedural laws, as the
intention now is to facilitate a relief and not to curtail it. The
aforesaid view of ours is fortified by Regulation 26 of the
Consumer Protection Regulations, 2005 which cautions the
G Commission to avoid the cumbersome procedure contemplated
under the Code of Civil Procedure. Clearly, the object is to make
the Commission as consumer friendly as possible. Having noted
the provision governing unfair trade practice, it is rather crystal
clear that it takes in its sweep all forms of unfair trade practice.
H
M/S TEXCO MARKETING PVT. LTD. v. TATA AIG GENERAL 1035
INSURANCE COMPANY LTD. & ORS.

One cannot give a restrictive or narrow interpretation to this A
provision which starts from an invitation, preceded by an offer,
followed by an acceptance, conduct, and execution of the contract.
Court’s finding against one of the parties qua the existence of
unfair trade practice has to be transformed into an adequate relief
in favour of the other, particularly in light of Section 14 of the
B
1986 Act. One has to keep in mind the legislative intendment
behind the Act. Once again, we reiterate the definition clause
which gives adequate ammunition to the Court to declare any
form of unfair trade practice as illegal while granting the
appropriate relief. [Paras 28 & 29][1055-F-H; 1056-A-C]
3. The definition clause under sub-section (46) of Section 2 C
of the Consumer Protection Act, 2019 gives a very broad meaning
of unfair contract. As in the other provisions, it does not restrict
itself to the few illustrative circumstances mentioned under sub-
clause (i) to (vi). Ultimately, it is for the State Commission or the
National Commission to declare a contract as unfair contract. D
Though, these two provisions are merely defining the terms, they
actually empower the Commission to go into the issue qua the
unfair nature of the terms of a contract and also the trade practice.
Once, the State Commission or the National Commission, as the
case may be, comes to the conclusion that the term of a contract
is unfair, particularly by adopting an unfair trade practice, the E
aggrieved party has to be extended the resultant relief. The above
said view is further strengthened by Sections 47 and 49 of the
2019 Act. [Paras 30 & 31][1057-H; 1058-A-C]
4. Section 47 and 58 of the 2019 Act have been introduced
to facilitate the State Commission and the National Commission F
to exercise jurisdiction over a contract which is unfair. As stated,
the power is not only with respect to identifying a contract as
unfair or not, but also to grant the consequential relief. Under
sub-section (2) of Section 49 and 59 of the 2019 Act, the State
Commission and the National Commission, respectively, may G
declare any terms of the contract being unfair to any consumer to
be null and void. The principle governing the doctrine of civil
remedy of a contract is well enshrined in this provision. In these
provisions, there exists ample power to declare any terms of the

H
1036 SUPREME COURT REPORTS [2022] 9 S.C.R.

A contract as unfair by the State Commission and the National
Commission. The words “any terms of the contract” would
empower the State Commission and the National Commission to
exercise unrestricted jurisdiction over any particular term of a
contract, if in its opinion, its introduction by the insurer has certain
elements of unfairness. The consequence of the declaration of
B
that term as unfair, would make the contract active and executable
to the benefit of the consumer. Therefore, this provision takes
care of a possible mischief by the insurer as against the consumer.
This Court is conscious of the fact that the aforesaid provisions
have been introduced under the new 2019 Act. However, the
C intendment of these provisions could be seen as implied even
under the prior Act, i.e. the Consumer Protection Act, 1986.
[Paras 32-35][1059-G-H; 1060-A-D]
ANALYSIS
5. Both the forums have held concurrently that respondent
D No. 1 was conscious of the fact that the contract was entered into
for insuring a shop situated in the basement. The aforesaid
position is not only a factual one but also accepted by the
respondents as no challenge has been laid against the impugned
order. Similarly, there was no specific denial on the non-
E compliance of adequate notice. The National Commission has
not given any finding on this aspect, though it was dealt with in
extenso by the State Commission. On a reading of Section 21(A)
of the Consumer Protection Act, 1986, it is clear that it is not
akin to Section 96 of the Code of Civil Procedure, 1908. Even
otherwise, the impugned order has not considered all the relevant
F materials which were duly taken note of by the State Commission.
[Para 36][1061-A-C]
6. Once it is proved that there is a deficiency in service
and that respondent No. 1 knowingly entered into a contract,
notwithstanding the exclusion clause, the consequence would flow
G out of it. This Court has already discussed the scope and ambit of
the provisions under the Indian Contract Act, 1872. Even as per
the common law principle of acquiescence and estoppel,
respondent No. 1 cannot be allowed to take advantage of its own
wrong, if any. It is a conscious waiver of the exclusion clause by
H
M/S TEXCO MARKETING PVT. LTD. v. TATA AIG GENERAL 1037
INSURANCE COMPANY LTD. & ORS.

respondent No. 1. Under the impugned order, this court has have A
already taken note of and discussed, the findings of the State
Commission, which are indeed approved by the National
Commission. These findings are sufficient enough to come to
the conclusion that the terms of the contract are unfair, particularly
the exclusion clause, and that respondent No. 1 has indulged in
unfair trade practice. In such view of the matter, the decision of B
the National Commission cannot be sustained as the appellant
cannot be non-suited only on the ground of mere deficiency in
service without taking note of the fact that it is the duty of the
Forum to grant the consequential relief by exercising the power
under Section 14(d) and 14(f) of the Consumer Protection Act, C
1986 which mandates the payment of adequate compensation by
way of an award. The said provision makes it consequential in
granting adequate compensation once it finds deficiency, the
existence of unfair terms in the contract and unfair trade practice
on the part of the other party. In other words, a party is entitled
for the relief which the law provides. Non-compliance of Clauses D
(3) and (4) of the IRDA Regulation, 2002 preceded by unilateral
inclusion, and thereafter followed by the execution of the contract,
receiving benefits, and repudiation after knowing that it was
entered into for a basement, would certainly be an act of unfair
trade practice. This view is fortified by the finding that the E
exclusion clause is an unfair term, going against the very object
of the contract, making it otherwise un-executable from its
inception. [Para 37-39][1061-D-H; 1062-A-B]
Shivram Chandra Jagarnath Cold Storage v. New India
Assurance Co. Ltd. (2022) 4 SCC 539; Manmohan
F
Nanda v. United Insurance (2022) 4 SCC 582 : 2022
(3) JT 338; Modern Insulators Ltd. v. Oriental
Insurance Co. Ltd. (2000) 2 SCC 734 : [2000] 1 SCR
1076; Beed District Central Coop. Bank Ltd. v. State of
Maharashtra, (2006) 8 SCC 514 : [2006] 6 Suppl. SCR
895 – relied on. G
N. Murugesan v. Union of India (2022) 2 SCC 25 :
2021 (10 ) JT 264; George Mitchell (Chesterhall) Ltd
v Finney Lock Seeds Ltd. (1983) Law Reports Q.B.
284); United India Insurance Co. Ltd. v. M.K.J.
Corporation (1996) 6 SCC 428 : [1996] 5 Suppl. SCR H
1038 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 20; Bharat Watch Company v. National Insurance Co.
Ltd. 2019 (6) SCC 212: [2019] 6 SCR 302; IREO Grace
Realtech (P) Ltd. v. Abhishek Khanna, (2021) 3 SCC
241: 2021 (1 ) JT 323 - referred to.
Case Law Reference
B [1996] 5 Suppl. SCR 20 referred to Para 18
[2000] 1 SCR 1076 relied on Para 19
[2019] 6 SCR 302 referred to Para 20
[2006] 6 Suppl. SCR 895 relied on Para 22
C
CIVIL APPELLATE JURISDICTION : Civil Appeal No.8249
of 2022.
From the Judgment and Order dated 31.01.2018 of the National
Consumer Disputes Redressal Commission at New Delhi in First Appeal
No.275 of 2016.
D
A. K. Ganguli, Sr. Adv., Joydeep Sen, Rohit Dutta, Guddu Singh,
Arunabh Ganguli, Ms. Shalini Kaul, Ms. Priyata Chakraborty, Advs. for
the Appellant.
Mrs. Shantha Devi R., Garvesh Kabra, Arihant Jain, Advs. for
E the Respondents.
The Judgment of the Court was delivered by
M. M. SUNDRESH, J.
Leave granted.
F Heard learned counsel for the parties at length.
ON FACTS
1. The appellant secured a Standard Fire & Special Perils policy
from the respondent on 28.07.2012. The policy was effective from
28.07.2012 to 27.07.2013. It was meant to cover a shop situated in the
G basement of the building. However, the exclusion clause of the contract
specifies that it does not cover the basement. Due inspection of the shop
was made which was actually situated on the other side of the road
from the office of respondent No. 1. Not only this shop of the appellant,
but yet another shop similarly situated, was also insured by respondent
H No. 1. The appellant continued to pay the premium promptly.
M/S TEXCO MARKETING PVT. LTD. v. TATA AIG GENERAL 1039
INSURANCE COMPANY LTD. & ORS. [M. M. SUNDRESH, J.]

2. The appellant put up further construction, for which due notice A
was given and due inspection was also made. The shop met with a fire
accident for which the appellant raised a claim. The surveyor of
respondent No. 1 also made an inspection, on the basis of which the
appellant was instructed to refurnish its shop for the purpose of due
evaluation. While arriving at the sum payable, the surveyor did notice
B
the fact that the earlier inspections were made and that the fact that the
shop was in a basement was to the knowledge of the insurer. The claim
made was repudiated by respondent No. 1, taking umbrage under the
exclusion clause.
3. The State Consumer Disputes Redressal Commission
(hereinafter referred to as ‘the State Commission’) rejected the C
contention of respondent No. 1 on the premise that there was no adequate
disclosure, the mandatory provisions have not been followed, as such
the insurer was deficient in service and indulged in unfair trade practice.
The fact that a similarly placed shop was also covered, was not in dispute.
The amount payable is only after due deduction of the goods meant for D
the third party.
4. The aforesaid decision was overturned by the National
Consumer Disputes Redressal Commission (hereinafter referred to as
‘the National Commission’), despite a finding to the effect that respondent
No. 1 was not in compliance of the mandate of the law and inspection E
was indeed done prior to the execution of the contract, and even thereafter.
Having found a deficiency in service, it placed reliance upon the exclusion
clause in setting aside the decision of the State Commission while granting
a sum of Rs.7.5 lakhs. It is this decision of the National Commission
which is under challenge before us.
F
SUBMISSION AT THE BAR
5. Shri. A.K. Ganguli, learned senior counsel appearing for the
appellant submitted that the National Commission has not overturned
the reasoning of the State Commission both on facts and law. When
once there is a finding which is not in dispute, the consequence would G
follow.
6. On the contrary, it is submitted by Smt. Shantha Devi R., learned
counsel appearing for the respondents that the existence of the exclusion
clause is not in dispute. Admittedly, the shop was situated in the basement,
as such, the mere fact that the decision of the National Commission was
H
1040 SUPREME COURT REPORTS [2022] 9 S.C.R.

A accepted would not disentitle the respondents to contend that the finding
that there was knowledge even at the time of the execution of the contract,
is not correct. In any case, it cannot be the basis for restoring the decision
of the State Commission.
GRAVAMEN OF THE CASE
B 7. “Whether an exclusion clause destroying the very contract
knowingly entered, can be permitted to be used by a party who introduced
it, becomes a beneficiary and then to avoid its liability?”
PRINCIPLES

C Adhesion Contract
8. Black’s Law Dictionary defines “Adhesion Contract” as:
“A standard-form contract prepared by one party, to be signed by
the party in a weaker position, usually a consumer, who has little
choice about the terms. Also termed Contract of adhesion;
D adhesory contract; adhesionary contract; take it or leave it contract;
leonire contract.”
9. Adhesion contracts are otherwise called Standard-Form
Contracts. Contracts of Insurance are one such category of contracts.
These contracts are prepared by the insurer having a standard format
E upon which a consumer is made to sign. He has very little option or
choice to negotiate the terms of the contract, except to sign on the dotted
lines. The insurer who, being the dominant party dictates its own terms,
leaving it upon the consumer, either to take it or leave it. Such contracts
are obviously one sided, grossly in favour of the insurer due to the weak
bargaining power of the consumer.
F
10. The concept of freedom of contract loses some significance
in a contract of insurance. Such contracts demand a very high degree of
prudence, good faith, disclosure and notice on the part of the insurer,
being different facets of the doctrine of fairness. Though, a contract of
insurance is a voluntary act on the part of the consumer, the obvious
G intendment is to cover any contingency that might happen in future. A
premium is paid obviously for that purpose, as there is a legitimate
expectation of reimbursement when an act of God happens. Therefore,
an insurer is expected to keep that objective in mind, and that too from
the point of view of the consumer, to cover the risk, as against a plausible
H repudiation.
M/S TEXCO MARKETING PVT. LTD. v. TATA AIG GENERAL 1041
INSURANCE COMPANY LTD. & ORS. [M. M. SUNDRESH, J.]

Exclusion Clause A
11. An exclusion clause in a contract of insurance has to be
interpreted differently. Not only the onus but also the burden lies with
the insurer when reliance is made on such a clause. This is for the
reason that insurance contracts are special contracts premised on the
notion of good faith. It is not a leverage or a safeguard for the insurer, B
but is meant to be pressed into service on a contingency, being a contract
of speculation. An insurance contract by its very nature mandates
disclosure of all material facts by both parties.
12. An exclusion clause has to be understood on the touch-stone
of the doctrine of reading down in the light of the underlining object and C
intendment of the contract. It can never be understood to mean to be in
conflict with the main purpose for which the contract is entered. A party,
who relies upon it, shall not be the one who committed an act of fraud,
coercion or mis-representation, particularly when the contract along with
the exclusion clause is introduced by it. Such a clause has to be understood
on the prism of the main contract. The main contract once signed would D
eclipse the offending exclusion clause when it would otherwise be
impossible to execute it. A clause or a term is a limb, which has got no
existence outside, as such, it exists and vanishes along with the contract,
having no independent life of its own. It has got no ability to destroy its
own creator, i.e. the main contract. When it is destructive to the main E
contract, right at its inception, it has to be severed, being a conscious
exclusion, though brought either inadvertently or consciously by the party
who introduced it. The doctrine of waiver, acquiescence, approbate and
reprobate, and estoppel would certainly come into operation as considered
by this court in N. Murugesan v. Union of India (2022) 2 SCC 25.
F
13. On the aforesaid principle of law, particularly with respect to
the issues qua onus, burden and reading down, this Court in Shivram
Chandra Jagarnath Cold Storage v. New India Assurance Co. Ltd.
(2022) 4 SCC 539 has held as follows,
“19. Another instance where exception clauses may be G
interpreted to the benefit of the insured is when the exception
clauses are too wide and not consistent with the main purpose or
object of the insurance policy. In B.V. Nagaraju v. Oriental
Insurance Co. Ltd. (1996) 4 SCC 647, a two-Judge Bench of
this Court read down an exception clause to serve the main purpose
H
1042 SUPREME COURT REPORTS [2022] 9 S.C.R.

A of the policy. However, this Court clarified that the breach of the
exception clause was not so fundamental in nature that would
have led to the repudiation of the insurance policy. In that case,
the terms of the insurance policy allowed an insured vehicle to
carry six workmen, excluding the driver. When the vehicle met
with an accident, it was carrying nine persons apart from the
B
driver. The insured had moved a claim for repair of the vehicle,
which was rejected by the insurer.
20. Allowing the claim, this Court held thus : (B.V. Nagaraju
case (1996) 4 SCC 647] , SCC pp. 650-51, para 7)
C “7. It is plain from the terms of the Insurance Policy
that the insured vehicle was entitled to carry 6 workmen,
excluding the driver. If those 6 workmen when travelling
in the vehicle, are assumed not to have increased any risk
from the point of view of the Insurance Company on
occurring of an accident, how could those added persons
D be said to have contributed to the causing of it is the poser,
keeping apart the load it was carrying. Here, it is nobody’s
case that the driver of the insured vehicle was responsible
for the accident. In fact, it was not disputed that the
oncoming vehicle had collided head-on against the insured
E vehicle, which resulted in the damage. Merely by lifting a
person or two, or even three, by the driver or the cleaner
of the vehicle, without the knowledge of the owner, cannot
be said to be such a fundamental breach that the owner
should, in all events, be denied indemnification. The misuse
of the vehicle was somewhat irregular though, but not so
F fundamental in nature so as to put an end to the contract,
unless some factors existed which, by themselves, had gone
to contribute to the causing of the accident. In the instant
case, however, we find no such contributory factor. In
Skandia case [Skandia Insurance Co. Ltd. v. Kokilaben
G Chandravadan, (1987) 2 SCC 654] this Court paved the
way towards reading down the contractual clause by
observing as follows : (SCC pp. 665-66, para 14)
‘14. … When the option is between opting for a view
which will relieve the distress and misery of the victims of
H accidents or their dependants on the one hand and the equally
M/S TEXCO MARKETING PVT. LTD. v. TATA AIG GENERAL 1043
INSURANCE COMPANY LTD. & ORS. [M. M. SUNDRESH, J.]

plausible view which will reduce the profitability of the insurer A
in regard to the occupational hazard undertaken by him by
way of business activity, there is hardly any choice. The Court
cannot but opt for the former view. Even if one were to make
a strictly doctrinaire approach, the very same conclusion would
emerge in obeisance to the doctrine of “reading down” the
B
exclusion clause in the light of the “main purpose” of the
provision so that the “exclusion clause” does not cross swords
with the “main purpose” highlighted earlier. The effort must
be to harmonise the two instead of allowing the exclusion clause
to snipe successfully at the main purpose. The theory which
needs no support is supported by Carter’s “Breach of Contract” C
vide para 251. To quote:
“Notwithstanding the general ability of contracting parties
to agree to exclusion clauses which operate to define obligations
there exists a rule, usually referred to as the “main purpose
rule”, which may limit the application of wide exclusion clauses D
defining a promisor’s contractual obligations. For example, in
Glynn v. Margetson & Co. [1893 AC 351 (HL)] , AC at p.
357, Lord Halsbury, L.C. stated : (AC p. 357)
‘… It seems to me that in construing this document,
which is a contract of carriage between the parties, one must E
in the first instance look at the whole instrument and not at one
part of it only. Looking at the whole instrument, and seeing
what one must regard … as its main purpose, one must reject
words, indeed whole provisions, if they are inconsistent with
what one assumes to be the main purpose of the contract.’
F
Although this rule played a role in the development of
the doctrine of fundamental breach, the continued validity of
the rule was acknowledged when the doctrine was rejected
by the House of Lords in Suisse Atlantique Societe d’
Armement Maritime S.A. v. N.V. Rotterdamsche Kolen
Centrale (1967) 1 AC 361 : (1966) 2 WLR 944 (HL)] . G
Accordingly, wide exclusion clauses will be read down to the
extent to which they are inconsistent with the main purpose, or
object of the contract.”
(emphasis in original and supplied)”
H
1044 SUPREME COURT REPORTS [2022] 9 S.C.R.

A Duty of Disclosure, Good Faith and Notice
14. The principles governing disclosure, good faith and notice are
founded on the common law principle of fairness. These principles are
meant to be applied with more rigour in standard form contracts such as
insurance contracts. Such an application is warranted much more when
B we deal with an exclusion clause. A very high standard of good faith,
disclosure and due compliance of notice is required on the part of the
insurer, keeping in view the unique nature of an insurance contract.
15. An act of good faith on the part of the insurer starts from the
time of its intention to execute the contract. A disclosure should be a
C norm and what constitutes a material fact requires a liberal interpretation.
It is only when an insurer is not intending to act on an exclusion clause,
the aforesaid principles may not require a strict compliance. The three
elements which we have discussed are interconnected and overlapping.
It is the foremost duty of the insurer to give effect to a due disclosure
and notice in its true letter and spirit. When an exclusion clause is
D introduced making the contract unenforceable on the date on which it is
executed, much to the knowledge of the insurer, non-disclosure and a
failure to furnish a copy of the said contract by following the procedure
required by statute, would make the said clause redundant and non-
existent.
E 16. Lord Denning succinctly describes the fallacy in making an
inadequate disclosure in George Mitchell (Chesterhall) Ltd v Finney
Lock Seeds Ltd. (1983) Law Reports Q.B. 284),
“None of you nowadays will remember the trouble we had
- when I was called to the Bar - with exemption clauses. They
F were printed in small print on the back of tickets and order forms
and invoices. They were contained in catalogues or timetables.
They were held to be binding on any person who took them without
objection. No one ever did object. He never read them or knew
what was in them. No matter how unreasonable they were, he
G was bound. All this was done in the name of “freedom of contract.”
But the freedom was all on the side of the big concern which had
the use of the printing press. No freedom for the little man who
took the ticket or order form or invoice. The big concern said,
“Take it or leave it.” The little man had no option but to take it.
The big concern could and did exempt itself from liability in its
H
M/S TEXCO MARKETING PVT. LTD. v. TATA AIG GENERAL 1045
INSURANCE COMPANY LTD. & ORS. [M. M. SUNDRESH, J.]

own interest without regard to the little man. It got away with it A
time after time. When the courts said to the big concern, “You
must put it in clear words,” the big concern had no hesitation in
doing so. It knew well that the little man would never read the
exemption clauses or understand them.
It was a bleak winter for our law of contract……” B
17. In a recent judgment, this Court in Manmohan Nanda v.
United Insurance (2022) 4 SCC 582, summarises the duty of an insurer
and an insured to disclose any material facts,
“Uberrimae fidei
C
31. It is observed that insurance contracts are special
contracts based on the general principles of full disclosure inasmuch
as a person seeking insurance is bound to disclose all material
facts relating to the risk involved. Law demands a higher standard
of good faith in matters of insurance contracts which is expressed
in the legal maxim uberrimae fidei. D
32. MacGillivray on insurance law 13th Ed. has summarised
the duty of an insured to disclose as under:
“...the assured must disclose to the insurer all facts
material to an insurer’s appraisal of the risk which are known
E
or deemed to be known by the assured but neither known nor
deemed to be known by the insurer. Breach of this duty by the
assured entitles the insurer to avoid the contract of insurance
so long as he can show that the non-disclosure induced the
making of the contract on the relevant terms.
F
33 . Lord Mansfield in Carter v. Boehm (1766) 3 Burr 1905 has
summarised the principles necessitating disclosure by the assured
in the following words: (E.R. p.1164)
“Insurance is a contract of speculation.
The special facts upon which the contingent chance is to G
be computed lie most commonly in the knowledge of the assured
only; the underwriter trusts to his representation, and proceeds
upon confidence that he does not keep back any circumstance in
his knowledge to mislead the underwriter into a belief that the
circumstance does not exist,….
H
1046 SUPREME COURT REPORTS [2022] 9 S.C.R.

A The keeping back such circumstance is a fraud, and
therefore the policy is void. Although the suppression should happen
through mistake, without any fraudulent intention, yet still the under-
writer is deceived and the policy is void; because the risk run is
really different from the risk understood and intended to be run at
the time of the agreement.
B
The policy would be equally void against the under-writer
if he concealed;...
Good faith forbids either party, by concealing what he
privately knows, to draw the other into a bargain from his ignorance
C of the fact, and his believing the contrary”.
The aforesaid principles would apply having regard to the nature
of policy under consideration, as what is necessary to be disclosed
are “material facts” which phrase is not definable as such, as the
same would depend upon the nature and extent of coverage of
D risk under a particular type of policy. In simple terms, it could be
understood that any fact which has a bearing on the very
foundation of the contract of insurance and the risk to be covered
under the policy would be a “material fact”.
xxx xxx xxx
E 35. Just as the insured has a duty to disclose all material facts, the
insurer must also inform the insured about the terms and conditions
of the policy that is going to be issued to him and must strictly
conform to the statements in the proposal form or prospectus, or
those made through his agents. Thus, the principle of utmost good
F faith imposes meaningful reciprocal duties owed by the insured to
the insurer and vice versa. This inherent duty of disclosure was a
common law duty of good faith originally founded in equity but
has later been statutorily recognised as noted above. It is also
open to the parties entering into a contract to extend the duty or
restrict it by the terms of the contract.”
G
18. On the principle of acting in good faith, it is held by this Court
in United India Insurance Co. Ltd. v. M.K.J. Corporation (1996)
6 SCC 428, that it is the primary duty of the parties to a contract to do so,
“(6) It is a fundamental principle of Insurance law that
utmost good faith must be observed by the contracting parties.
H
M/S TEXCO MARKETING PVT. LTD. v. TATA AIG GENERAL 1047
INSURANCE COMPANY LTD. & ORS. [M. M. SUNDRESH, J.]

Good faith forbids either party from concealing (non-disclosure) A
what he privately knows, to draw the other into a bargain, from
his ignorance of that fact and his believing the contrary. Just as
the insured has a duty to disclose, “similarly, it is the duty of the
insurers and their agents to disclose all material facts within their
knowledge, since obligation of good faith applies to them equally
B
with the assured.”
(7) The duty of good faith is of a continuing nature. After
the completion of the contract, no material alteration can be made
in its terms except by mutual consent. The materiality of a fact is
judged by the circumstances existing at the time when the contract
is concluded…..” C
19. A similar view is taken in Modern Insulators Ltd. v. Oriental
Insurance Co. Ltd. (2000) 2 SCC 734,
“(8) It is the fundamental principle of insurance law that
utmost good faith must be observed by the contracting parties
and good faith forbids either party from non-disclosure of the facts D
which the parties know. The insured has a duty to disclose and
similarly it is the duty of the insurance company and its agents to
disclose all material facts in their knowledge since the obligation
of good faith applies to both equally.”
20. We have already quoted with profit the classical passage of E
Lord Denning in George Mitchell (supra) on the degree of notice.
Such a degree of notice mandates a party relying upon the exclusion
clause to bring it to the knowledge of the other side, any failure to do so
would non-suit the said party from placing reliance upon it, as held in
Bharat Watch Company v. National Insurance Co. Ltd. 2019 (6)
SCC 212, F
“7. The basic issue which has been canvassed on behalf of
the appellant before this Court is that the conditions of exclusion
under the policy document were not handed over to the appellant
by the insurer and in the absence of the appellant being made
aware of the terms of the exclusion, it is not open to the insurer to G
rely upon the exclusionary clauses. Hence, it was urged that the
decision in United India Insurance Co. Ltd. v. Harchand Rai
Chandan Lal, (2004) 8 SCC 644, will have no application since
there was no dispute in that case that the policy document was
issued to the insured.
H
1048 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 8. This submission is sought to be answered by the learned
counsel appearing on behalf of the insurer by adverting to the fact
that SCDRC construed the terms of the exclusion. SCDRC,
however, did not notice the decision of this Court, and hence,
NCDRC was (it was urged) justified in correcting the error having
regard to the law laid down by this Court. The learned counsel
B
urged that the appellant has been insuring its goods for nearly ten
years and it is improbable that the appellant was not aware of the
exclusion.
9. We find from the judgment of the District Forum that it
was the specific contention of the appellant that the exclusionary
C conditions in the policy document had not been communicated by
the insurer as a result of which the terms and conditions of the
exclusion were never communicated. The fact that there was a
contract of insurance is not in dispute and has never been in dispute.
The only issue is whether the exclusionary conditions were
D communicated to the appellant. The District Forum came to a
specific finding of ÿþfact that the insurer did not furnish the terms
and conditions of the exclusion and special conditions to the
appellant and hence, they were not binding. When the case
travelled to SCDRC, there was a finding of fact again that the
conditions of exclusion were not supplied to the complainant.
E
10. Having held this, SCDRC also came to the conclusion
that the exclusion would in any event not be attracted. The finding
of SCDRC in regard to the interpretation of such an exclusionary
clause is evidently contrary to the law laid down by this Court in
Harchand Rai (supra) However, the relevance of that interpretation
F would have arisen provided the conditions of exclusion were
provided to the insured. NCDRC missed the concurrent findings
of both the District Forum and SCDRC that the terms of exclusion
were not made known to the insured. If those conditions were not
made known to the insured, as is the concurrent finding, there
G was no occasion for NCDRC to render a decision on the effect
of such an exclusion.”
21. On a discussion of the aforesaid principle, we would conclude
that there is an onerous responsibility on the part of the insurer while
dealing with an exclusion clause. We may only add that the insurer is
H statutorily mandated as per Clause 3(ii) of the Insurance Regulatory and
M/S TEXCO MARKETING PVT. LTD. v. TATA AIG GENERAL 1049
INSURANCE COMPANY LTD. & ORS. [M. M. SUNDRESH, J.]

Development Authority (Protection of Policy Holder’s Interests, A
Regulation 2002) Act dated 16.10.2002 (hereinafter referred to as IRDA
Regulation, 2002) to the effect that the insurer and his agent are duty
bound to provide all material information in respect of a policy to the
insured to enable him to decide on the best cover that would be in his
interest. Further, sub-clause (iv) of Clause 3 mandates that if proposal
B
form is not filled by the insured, a certificate has to be incorporated at
the end of the said form that all the contents of the form and documents
have been fully explained to the insured and made him to understand.
Similarly, Clause 4 enjoins a duty upon the insurer to furnish a copy of
the proposal form within thirty days of the acceptance, free of charge.
Any non-compliance, obviously would lead to the irresistible conclusion C
that the offending clause, be it an exclusion clause, cannot be pressed
into service by the insurer against the insured as he may not be in
knowhow of the same.
Doctrine of Blue Pencil
22. In such a situation, the doctrine of “blue pencil” which strikes D
off the offending clause being void ab initio, has to be pressed into
service. The said clause being repugnant to the main contract, and thus
destroying it without even a need for adjudication, certainly has to be
eschewed by the Court. The very existence of such a clause having
found to be totally illegal and detrimental to the execution of the main E
contract along with its objective, requires an effacement in the form of
declaration of its non-existence, warranting a decision by the Court
accordingly. The aforesaid principle evolved by the English and American
Courts has been duly taken note of by this Court in Beed District Central
Coop. Bank Ltd. v. State of Maharashtra, (2006) 8 SCC 514,
F
“10. The “doctrine of blue pencil” was evolved by the
English and American courts. In Halsbury’s Laws of England,
(4th Edn., Vol. 9), p. 297, para 430, it is stated:
“430. Severance of illegal and void provisions.—A
contract will rarely be totally illegal or void and certain parts of G
it may be entirely lawful in themselves. The question therefore
arises whether the illegal or void parts may be separated or
‘severed’ from the contract and the rest of the contract
enforced without them. Nearly all the cases arise in the context
of restraint of trade, but the following principles are applicable
to contracts in general.” H
1050 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 11. In P. Ramanatha Aiyar’s Advanced Law Lexicon, 3rd
Edn. 2005, Vol. 1, pp. 553-54, it is stated:
“Blue pencil doctrine (test).—A judicial standard for
deciding whether to invalidate the whole contract or only the
offending words. Under this standard, only the offending words
B are invalidated if it would be possible to delete them simply by
running a blue pencil through them, as opposed to changing,
adding, or rearranging words. (Black, 7th Edn., 1999)
This doctrine holds that if courts can render an
unreasonable restraint reasonable by scratching out the
C offensive portions of the covenant, they should do so and then
enforce the remainder. Traditionally, the doctrine is applicable
only if the covenant in question is applicable, so that the
unreasonable portions may be separated. E.P.I. of Cleveland,
Inc. v. Basler [12 Ohio App 2d 16 : 230 NE 2d 552, 556].

D Blue pencil rule/test.—Legal theory that permits a judge
to limit unreasonable aspects of a covenant not to compete.
Severance of contract; ‘severance can be effected when
the part severed can be removed by running a blue pencil
through it without affording the remaining part’. Attwood
E v. Lamont [(1920) 3 KB 571 : 1920 All ER Rep 55 (CA)] .
(Banking)
A rule in contracts a court may strike parts of a covenant
not to compete in order to make the covenant reasonable.
(Merriam Webster)
F Phrase referring to severance (q.v.) of contract.
‘Severance can be effected when the part severed can be
removed by running a blue pencil through it’ without affording
the remaining part. Attwood v. Lamont [(1920) 3 KB 571 : 1920
All ER Rep 55 (CA)] . (Banking)”
G 12. The matter has recently been considered by a learned Judge
of this Court while exercising his jurisdiction under sub-section
(6) of Section 11 of the Arbitration and Conciliation Act, 1996
in Shin Satellite Public Co. Ltd. v. Jain Studios Ltd. [(2006) 2
SCC 628]”
H
M/S TEXCO MARKETING PVT. LTD. v. TATA AIG GENERAL 1051
INSURANCE COMPANY LTD. & ORS. [M. M. SUNDRESH, J.]

The Indian Contract Act, 1872 A
“2.Interpretation-clause.- In this Act the following words
and expressions are used in the following senses, unless a contrary
intention appears from the context:-
xxx xxx xxx
B
(i) An agreement which is enforceable by law at the option
of one or more of the parties thereto, but not at the option
of the other or others, is a voidable contract;
xxx xxx xxx
C
10. What agreements are contracts.- All agreements
are contracts if they are made by the free consent of parties
competent to contract, for a lawful consideration and with a lawful
object, and are not hereby expressly declared to be void.
Nothing herein contained shall affect any law in force in
India, and not hereby expressly repealed, by which any contract D
is required to be made in writing or in the presence of witnesses,
or any law relating to the registration of documents.
xxx xxx xxx
17.‘Fraud’ defined.- ‘Fraud’ means and includes any of E
the following acts committed by a party to a contract, or with his
connivance, or by his agent, with intent to deceive another party
thereto or his agent, or to induce him to enter into the contract:-
(1) the suggestion, as a fact, of that which is not true, by one
who does not believe it to be true; F
(2) the active concealment of a fact by one having knowledge
belief of the fact:
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
G
(5) any such act or omission as the law specially declares to be
fraudulent.
Explanation.-Mere silence as to facts likely to affect the
willingness of a person to enter into a contract is not fraud, unless
the circumstances of the case are such that, regard being had to H
1052 SUPREME COURT REPORTS [2022] 9 S.C.R.

A them, it is the duty of the person keeping silence to speak, or
unless his silence, is, in itself, equivalent to speech.
xxx xxx xxx
18.”Misrepresentation” defined.- “Misrepresentation”
means and includes-
B
(1) the positive assertion, in a manner not warranted by the
information of the person making it, of that which is not
true, though he believes it to be true’
(2) any breach of duty which, without an intent to deceive,
C gains an advantage of the person committing it, or any
one claiming under him, by misleading another to his
prejudice, or to the prejudice of any one claiming under
him;
(3) causing, however innocently, a party to an agreement,
D to make a mistake as to the substance of the thing which
is the subject of the agreement.
xxx xxx xxx
19.Voidability of agreements without free consent.-
When consent to an agreement is caused by coercion, [***] fraud
E or misrepresentation, the agreement is a contract voidable at the
option of the party whose consent was so caused.
A party to contract, whose consent was caused by fraud or
misrepresentation, may, if he thinks fit, insist that the contract
shall be performed, and that he shall be put in the position in which
F he would have been if the representations made had been true.
Exception.- If such consent was caused by
misrepresentation or by silence, fraudulent within the meaning of
section 17, the contract, nevertheless, is not voidable, if the party
whose consent was so caused had the means of discovering the
G truth with ordinary diligence.
Explanation.- A fraud or misrepresentation which did not
cause the consent to a contract of the party on whom such fraud
was practised, or to whom such misrepresentation was made,
does not render a contract voidable.
H
M/S TEXCO MARKETING PVT. LTD. v. TATA AIG GENERAL 1053
INSURANCE COMPANY LTD. & ORS. [M. M. SUNDRESH, J.]

Illustrations A
xxx xxx xxx
(c) A fraudulently informs B that A’s estate is free from
incumbrance. B thereupon buys the estate. The estate is subject
to mortgage. B may either avoid the contract, or may insist on its
being carried out and mortgage-debt redeemed,” B

23. Section 2(i) of the Indian Contract Act, 1872 (hereinafter
referred to as “the Contract Act”) defines a voidable contract. This
definition clause extends the option to one side of the parties to the
contract to declare it as voidable.
C
24. Under Section 10 of the Contract Act, an agreement would
partake the character of a contract when consideration is lawful and so
also the objective. A void agreement cannot be enforced, not being a
contract in the eyes of law. The words “fraud” and “mis-representation”
are defined under Sections 17 and 18 of the Contract Act. These two
provisions on a simple reading give a clear indication that they are of D
very wide import. No restrictive meaning can be given to them, as both
the words “means” and “includes” are consciously mentioned. The
categories given are merely illustrative in nature. What constitutes an
act of “fraud” or “mis-representation” is a question of fact.
25. Once an act of fraud, coercion or misrepresentation is proved, E
the agreement being a contract becomes voidable at the option of the
party against whom it was done. Option under Section 19 of the Contract
Act not only facilitates such a party, but also curtails the other who is
responsible, from seeking to declare the contract as voidable. Thus, the
door is shut for the said party who benefits from such an act in seeking F
to declare the contract as voidable.
26. The second part of Section 19 of the Contract Act extends a
further benefit to the aggrieved party to seek the performance of the
contract, notwithstanding, the fraud or misrepresentation against him.
Therefore, an aggrieved party has the option to either declare the contract
G
as voidable or insist upon its due performance. The provision has got a
laudable objective behind it which is to provide adequate relief to the
party, who is aggrieved at the hands of the one who committed fraud,
coercion or misrepresentation. The aforesaid position is made clear from
illustration (c) to Section 19 of the Contract Act, which provides for the
H
1054 SUPREME COURT REPORTS [2022] 9 S.C.R.

A B party either to avoid the contract or insist upon it being carried out. It
also debars the violator from deriving benefit from his wrong doing.
27. When a court of law is satisfied that a fraud, or
misrepresentation resulted in the execution of the contract through the
suppression of the existence of a mutually destructive clause facilitating
B a window for the insurer to escape from the liability while drawing benefit
from the consumer, the resultant relief will have to be granted.
Consumer Protection Act, 1986:
“2. Definitions.- (1) In this Act, unless the context otherwise
requires,-
C
xxx xxx xxx
(g) “deficiency” means any fault, imperfection, shortcoming
or inadequacy in the quality, nature and manner of performance
which is required to be maintained by or under any law for the
D time being in force or has been undertaken to be performed by
a person in pursuance of a contract or otherwise in relation to
any service;
xxx xxx xxx
(r) “unfair trade practice” means a trade practice which, for
E the purpose of promoting the sale, use or supply of any goods
or for the provision of any service, adopts any unfair method
or unfair or deceptive practice including any of the following
practices, namely:—
(1) the practice of making any statement, whether orally
F or in writing or by visible representation which,—
xxx xxx xxx
(iv) represents that the goods or services have
sponsorship, approval, performance, characteristics,
accessories, uses or benefits which such goods or
G services do not have.
xxx xxx xxx
(vi) makes a false or misleading representation
concerning the need for, or the usefulness of, any goods
or services.”
H
M/S TEXCO MARKETING PVT. LTD. v. TATA AIG GENERAL 1055
INSURANCE COMPANY LTD. & ORS. [M. M. SUNDRESH, J.]

xxx xxx xxx A
3. Act not in derogation of any other law.— The
provisions of this Act shall be in addition to and not in derogation
of the provisions of any other law for the time being in force.
xxx xxx xxx
B
14. Finding of the District Forum.—(1) If, after the
proceeding conducted under section 13, the District Forum is
satisfied that the goods complained against suffer from any of the
defects specified in the complaint or that any of the allegations
contained in the complaint about the services are proved, it shall
issue an order to the opposite party directing him to do one or C
more of the following things, namely:—
xxx xxx xxx
(d) to pay such amount as may be awarded by it as
compensation to the consumer for any loss or injury suffered
by the consumer due to the negligence of the opposite party: D
Provided that the District Forum shall have the power
to grant punitive damages in such circumstances as it deems
fit;
xxx xxx xxx
E
(f) to discontinue the unfair trade practice or the restrictive
trade practice or not to repeat them;
28. The consumer under the Consumer Protection Act, 1986
(hereinafter referred to as “the 1986 Act”) is at an elevated place than
the plaintiff in a suit. A dispute before the Consumer Commission is to
be seen primarily from the point of view of the consumer as against the F
civil suit. It is only to avoid any possible bottleneck in granting the relief.
The jurisdiction of the Commission has been clearly demarcated, being
in addition to any other laws in force as stipulated under Section 3 of the
1986 Act. The Act being a self-contained one, requires to be strengthened
by the procedural laws, as the intention now is to facilitate a relief and G
not to curtail it. The aforesaid view of ours is fortified by Regulation 26
of the Consumer Protection Regulations, 2005 which cautions the
Commission to avoid the cumbersome procedure contemplated under
the Code of Civil Procedure. Clearly, the object is to make the Commission
as consumer friendly as possible.
H
1056 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 29. Having noted the provision governing unfair trade practice, it
is rather crystal clear that it takes in its sweep all forms of unfair trade
practice. One cannot give a restrictive or narrow interpretation to this
provision which starts from an invitation, preceded by an offer, followed
by an acceptance, conduct, and execution of the contract. Court’s finding
against one of the parties qua the existence of unfair trade practice has
B
to be transformed into an adequate relief in favour of the other, particularly
in light of Section 14 of the 1986 Act. One has to keep in mind the
legislative intendment behind the Act. Once again, we reiterate the
definition clause which gives adequate ammunition to the Court to declare
any form of unfair trade practice as illegal while granting the appropriate
C relief.
Consumer Protection Act, 2019:
“2. Definitions. – In this Act, unless the context otherwise
requires,-
D xxx xxx xxx
xxx xxx xxx
(46) “unfair contract” means a contract between a manufacturer
or trader or service provider on one hand, and a consumer on the
other, having such terms which cause significant change in the
E rights of such consumer, including the following, namely:—
(i) requiring manifestly excessive security deposits to
be given by a consumer for the performance of
contractual obligations; or
(ii) imposing any penalty on the consumer, for the breach
F
of contract thereof which is wholly disproportionate
to the loss occurred due to such breach to the other
party to the contract; or
(iii) refusing to accept early repayment of debts on
payment of applicable penalty; or
G
(iv) entitling a party to the contract to terminate such
contract unilaterally, without reasonable cause; or
(v) permitting or has the effect of permitting one party
to assign the contract to the detriment of the other
H party who is a consumer, without his consent; or
M/S TEXCO MARKETING PVT. LTD. v. TATA AIG GENERAL 1057
INSURANCE COMPANY LTD. & ORS. [M. M. SUNDRESH, J.]

(vi) imposing on the consumer any unreasonable charge, A
obligation or condition which puts such consumer to
disadvantage;”
(47) “unfair trade practice” means a trade practice which, for the
purpose of promoting the sale, use or supply of any goods or for
the provision of any service, adopts any unfair method or unfair B
or deceptive practice including any of the following practices,
namely:—
(i) making any statement, whether orally or in writing or by
visible representation including by means of electronic
record, which— C
(a) falsely represents that the goods are of a particular
standard, quality, quantity, grade, composition, style
or model;
(b) falsely represents that the services are of a particular
standard, quality or grade; D
(c) falsely represents any re-built, second-hand,
renovated, reconditioned or old goods as new goods;
(d) represents that the goods or services have
sponsorship, approval, performance, characteristics,
E
accessories, uses or benefits which such goods or
services do not have;
(e) represents that the seller or the supplier has a
sponsorship or approval or affiliation which such seller
or supplier does not have;
F
(f) makes a false or misleading representation
concerning the need for, or the usefulness of, any
goods or services;
(g) gives to the public any warranty or guarantee of the
performance, efficacy or length of life of a product G
or of any goods that is not based on an adequate or
proper test thereof:”
30. The definition clause under sub-section (46) of Section 2 of
the Consumer Protection Act, 2019 (hereinafter referred to as “the 2019
Act”) gives a very broad meaning of unfair contract. As in the other H
1058 SUPREME COURT REPORTS [2022] 9 S.C.R.

A provisions, it does not restrict itself to the few illustrative circumstances
mentioned under sub-clause (i) to (vi). Ultimately, it is for the State
Commission or the National Commission to declare a contract as unfair
contract.
31. Though, these two provisions are merely defining the terms,
B they actually empower the Commission to go into the issue qua the
unfair nature of the terms of a contract and also the trade practice.
Once, the State Commission or the National Commission, as the case
may be, comes to the conclusion that the term of a contract is unfair,
particularly by adopting an unfair trade practice, the aggrieved party has
to be extended the resultant relief. The above said view is further
C strengthened by Sections 47 and 49 of the 2019 Act.
Section 47 and 49
“(47) Jurisdiction of State Commission.- (1) Subject to
the other provisions of this Act, the State Commission shall
D have jurisdiction—
(a) to entertain—
(i) complaints where the value of the goods or services
paid as consideration, exceeds rupees one crore, but
does not exceed rupees ten crore:
E
Provided that where the Central Government
deems it necessary so to do, it may prescribe such
other value, as it deems fit;
(ii) complaints against unfair contracts, where the value
of goods or services paid as consideration does not
F
exceed ten crore rupees;
(iii) appeals against the orders of any District Commission
within the State; and…
xxx xxx xxx
G 49. Procedure applicable to State Commission.-
(1) Theprovisions relating to complaints under sections 35, 36,
37, 38 and 39 shall, with such modifications as may be necessary,
be applicable to the disposal of complaints by the State
Commission.
H
M/S TEXCO MARKETING PVT. LTD. v. TATA AIG GENERAL 1059
INSURANCE COMPANY LTD. & ORS. [M. M. SUNDRESH, J.]

(2) Without prejudice to the provisions of sub-section A
(1), the State Commission may also declare any terms of
contract, which is unfair to any consumer, to be null and void.
xxx xxx xxx
58. Jurisdiction of National Commission
B
(1) Subject to the other provisions of this Act, the National
Commission shall have jurisdiction—
(a) to entertain—
(i) complaints where the value of the goods or services
paid as consideration exceeds rupees ten crore: Provided C
that where the Central Government deems it necessary so
to do, it may prescribe such other value, as it deems fit;
(ii) complaints against unfair contracts, where the value of
goods or services paid as consideration exceeds ten crore
rupees; D
(iii) appeals against the orders of any State Commission;
(iv) appeals against the orders of the Central Authority;
and……”
xxx xxx xxx E
59. Procedure applicable to National Commission.- (1)
The provisions relating to complaints under sections 35, 36, 37,
38 and 39 shall, with such modifications as may be considered
necessary, be applicable to the disposal of complaints by the
National Commission. F
(2) Without prejudice to sub-section (1), the National
Commission may also declare any terms of contract, which is
unfair to any consumer to be null and void.”
32. Section 47 and 58 of the 2019 Act have been introduced to
facilitate the State Commission and the National Commission to exercise G
jurisdiction over a contract which is unfair. As stated, the power is not
only with respect to identifying a contract as unfair or not, but also to
grant the consequential relief.
33. Under sub-section (2) of Section 49 and 59 of the 2019 Act,
the State Commission and the National Commission, respectively, may H
1060 SUPREME COURT REPORTS [2022] 9 S.C.R.

A declare any terms of the contract being unfair to any consumer to be
null and void. The principle governing the doctrine of civil remedy of a
contract is well enshrined in this provision.
34. In these provisions, there exists ample power to declare any
terms of the contract as unfair by the State Commission and the National
B Commission. The words “any terms of the contract” would empower
the State Commission and the National Commission to exercise
unrestricted jurisdiction over any particular term of a contract, if in its
opinion, its introduction by the insurer has certain elements of unfairness.
The consequence of the declaration of that term as unfair, would make
the contract active and executable to the benefit of the consumer.
C Therefore, this provision takes care of a possible mischief by the insurer
as against the consumer.
35. We are conscious of the fact that the aforesaid provisions
have been introduced under the new 2019 Act. However, the intendment
of these provisions could be seen as implied even under the prior Act,
D i.e. the Consumer Protection Act, 1986. This Court has traced the
jurisdiction of the Commission under Section 14 of the Consumer
Protection Act, 1986 Act in IREO Grace Realtech (P) Ltd. v.
Abhishek Khanna, (2021) 3 SCC 241,
“33. Section 14 of the 1986 Act empowers the Consumer Fora to
E redress the deficiency of service by issuing directions to the Builder,
and compensate the consumer for the loss or injury caused by the
opposite party, or discontinue the unfair or restrictive trade
practices.
34. We are of the view that the incorporation of such one-sided
F and unreasonable clauses in the apartment buyer’s Agreement
constitutes an unfair trade practice under Section 2(1)(r) of the
Consumer Protection Act. Even under the 1986 Act, the powers
of the consumer fora were in no manner constrained to declare a
contractual term as unfair or one-sided as an incident of the power
G to discontinue unfair or restrictive trade practices. An “unfair
contract” has been defined under the 2019 Act, and powers have
been conferred on the State Consumer Fora and the National
Commission to declare contractual terms which are unfair, as null
and void. This is a statutory recognition of a power which was
implicit under the 1986 Act.”
H
M/S TEXCO MARKETING PVT. LTD. v. TATA AIG GENERAL 1061
INSURANCE COMPANY LTD. & ORS. [M. M. SUNDRESH, J.]

ANALYSIS A
36. Both the forums have held concurrently that respondent No.
1 was conscious of the fact that the contract was entered into for insuring
a shop situated in the basement. The aforesaid position is not only a
factual one but also accepted by the respondents as no challenge has
been laid against the impugned order. Similarly, there was no specific B
denial on the non-compliance of adequate notice. The National
Commission has not given any finding on this aspect, though it was dealt
with in extenso by the State Commission. On a reading of Section 21(A)
of the Consumer Protection Act, 1986, it is clear that it is not akin to
Section 96 of the Code of Civil Procedure, 1908. Even otherwise, the
impugned order has not considered all the relevant materials which were C
duly taken note of by the State Commission.
37. Once it is proved that there is a deficiency in service and that
respondent No. 1 knowingly entered into a contract, notwithstanding the
exclusion clause, the consequence would flow out of it. We have already
discussed the scope and ambit of the provisions under the Indian Contract D
Act, 1872. Even as per the common law principle of acquiescence and
estoppel, respondent No. 1 cannot be allowed to take advantage of its
own wrong, if any. It is a conscious waiver of the exclusion clause by
respondent No. 1.
38. Under the impugned order, we have already taken note of and E
discussed, the findings of the State Commission, which are indeed
approved by the National Commission. These findings are sufficient
enough to come to the conclusion that the terms of the contract are
unfair, particularly the exclusion clause, and that respondent No. 1 has
indulged in unfair trade practice. In such view of the matter, the decision F
of the National Commission cannot be sustained as the appellant cannot
be non-suitedonly on the ground of mere deficiency in service without
taking note of the fact that it is the duty of the Forum to grant the
consequential relief by exercising the power under Section 14(d) and
14(f) of the Consumer Protection Act, 1986 which mandates the payment
of adequate compensation by way of an award. The said provision makes G
it consequential in granting adequate compensation once it finds
deficiency, the existence of unfair terms in the contract and unfair trade
practice on the part of the other party. In other words, a party is entitled
for the relief which the law provides.
H
1062 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 39. Non-compliance of Clauses (3) and (4) of the IRDA Regulation,
2002 preceded by unilateral inclusion, and thereafter followed by the
execution of the contract, receiving benefits, and repudiation after
knowing that it was entered into for a basement, would certainly be an
act of unfair trade practice. This view is fortified by the finding that the
exclusion clause is an unfair term, going against the very object of the
B
contract, making it otherwise un-executable from its inception.
40. Therefore, we have no hesitation in setting aside the order
passed by the National Commission. However, we are in agreement
with the submission made by the counsel appearing for the respondents
that the State Commission without any basis granted a sum of Rs.2.5
C lakhs towards harassment and mental agony. We are of the view that no
case for awarding amount under that head has been made out as the
respondents merely took a legal stand.
41. In light of the aforesaid, the order impugned passed by the
National Commission in F.A. No. 275 of 2016 stands set aside except to
D the extent of declining a sum of Rs.2.5 lakhs towards harassment and
mental agony. The appeal stands allowed in part.
42. Before we part with this case, we would like to extend a word
of caution to all the insurance companies on the mandatory compliance
of Clause (3) and (4) of the IRDA Regulation, 2002. Any non-compliance
E on the part of the insurance companies would take away their right to
plead repudiation of contract by placing reliance upon any of the terms
and conditions included thereunder.

Ankit Gyan Appeal partly allowed.
F (Assisted by : Rahul Rathi, LCRA)

G

H