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TMI Blog1995 (5) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... also be reasonable and accessible. Accordingly, we hold that the declaration given by the High Court is not vitiated by any manifest error of law warranting interference. It may be made clear that with a view to make the policy viable and easily available to the general public, it may be open to the appellants to revise the premium in the light of the law declared in this judgment but it must not be arbitrary, unjust, excessive and oppressive. Both the appeals are accordingly dismissed but in the circumstances parties are directed to bear their own costs. X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in obtaining a particular policy and their viability. The High Court was not justified in interfering with matters based on economic criteria and commercial contracts, in particular, after having recorded findings referred to hereinbefore in favour of the corporation, the High Court committed error of law in declaring the offending portion of the policy as arbitrary and violative of Articles 14, 19 and 21 of the Constitution. The actuarial principles are the calculations made by actuaries taking into consideration: a) present condition of health and physical build of the life to be insured; b) personal and family history, occupation, likelihood of any change in the occupation etc. The premium to be charged in a particular policy is calculated by actuarial method. These conditions have been imposed taking into consideration risk to be covered to see that the plan is successfully operated. The afore-stated conditions are necessary to forecast mortality among insured lives within a relatively narrow margin of error, depending upon general population statistics based on insured lives. The tables were framed to cover the risk of all classes of people to suit all the classes. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es must be in conformity with the rights in Parts III and IV of the Constitution. It has no power to impose any unconstitutional conditions in the contract, no classification much less valid classification has been made between salaried employees in Government, Semigovernment, organised sectors or reputed commercial organisations, self-employed or unorganised sectors. The term insurance policy being cheaper premium helps large segments of poor and lower middle class persons. Sezhivan Committee on improvement of Insurance, the LIC recommended popularisation in urban and rural areas policies under Table 58. The whole life or endowment policies are not easily accessible to the poorer segments of the society. Only term insurance under Table 58 policy is more attractive and easily accessible to those segments of the society. Imposition of conditions including the one struck down by the High Court are, therefore, unconstitutional and impermissible. We have given our anxious and careful consideration to the respective contentions, since our answers to the questions involved are bound to have far reaching effect on the business of life insurance, we have minutely examined all the questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forts mainly on upper strata and employed sections of the population which has a regular income and saving potential. The obligatory linking of life insurance to savings inherent in the conventional individual assurance plans and the LIC's concentration on this type of business together, had the effect of denying life insurance cover to the vast section of the people who do not have regular income and whose savings potential is low; (iii) as a result of the above, only about 10% of the insurable male lives in the country have been provided cover against death. That too on the salary earning classes and persons in the higher income groups who take out LIC mainly because of the tax relief available. The coverage of persons in rural areas and of those employed in the unorganised sector in the urban areas in meagre; (vi) Life insurance in India can still be a viable savings medium, as it is in U.K., provided the LIC is enabled to improve substantially the yield on its investment and to control effectively its expenses of management. In para 13.18, the report further states that "there is one other plan which the Committee feels the LIC ought to introduce and that is a level premium ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4.80 Rs.4.70 Rs.4.65 14 (Endowment with profit) Rs.217.15 Rs.179.40 Rs.152.65 11 (Endowment without profit)" Rs.188.90 Rs.152.00 Rs.126.00 The premium payable to the term insurance at the age of 20, 25, 30, 35, 40, 45 years is as disclosed in the Table given by the appellants thus:- SPECIFIED TERM Age nearer Birthday 5 years 6 years 7 years (In rupees and paise) 20 4.80 4.70 4.65 25 4.95 4.90 4.90 30 5.50 5.50 5.50 35 6.50 6.55 6.65 40 8.70 8.90 9.10 45 12.45 -- -- 50 18.45 -- -- The term insurance policy under Table 58, therefore, appears to be the cheapest and most accessible policy which a large number of people in the country both in rural and in urban sectors can afford to take for the reason that the premium is low and within affordable limit. The policy is for a short term of 5 to 7 years. There is no return for the insured at the end of the policy. In the event of death of the insured, it purely provides insurance cover to the family as social security to support the dependents. Pursuant to the recommendation made by Sczhiyan Committee, the term insurance policy was brought into vogue. In fact, this policy appears to be very po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sures socio- economic justice to all the Indian citizens in matters of equality of status and of opportunity with assurance to dignity of the individual. Article 14 provides equality before law and its equal protection. Article 19 assures freedoms with right to residence and settlement in any part of the country and Article 21 by receiving expansive interpretation of right to life extends to right to livelihood. Article 38 in the Chapter of Directive Principles enjoins the State to promote the welfare of the people by securing and protecting effective social order in which socio-economic justice shall inform all the institutions of the national life. It enjoins to eliminate inequality in status, to provide facilities and opportunities among the individuals and groups of the people living in any part of the country and engaged in any avocation. Article 39 assures to secure the right to livelihood, health and strength of workers, men and women and the children of tender age. The material resources of the community are required to be so distributed as best to subserve the common good. Social security has been assured under Article 41 and Article 47 imposes a positive duty on the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 7 of the International Convention of Economic, Social and Cultural Rights, one of us (K. Ramaswamy, J.) in C.E.S.C. Ltd. v. Subhash Chandra Bose, (1992)1 SCC 441 at p.462 in para 30, held that the right to social justice is a fundamental right. Right to livelihood springs from the right to life guaranteed under Article 21. The health and strength of a worker is an integral facet of right to life. Right to human dignity, development of personality, social protection, right to rest and leisure are fundamental human rights to a common man. Right to life and dignity of person and status without means are cosmetic rights. Socio-economic rights are, therefore, basic aspirators for meaningful right to life. Right to social security and protection of the family are integral part of the right to life. Right to social and economic justice is a fundamental right". In paragraph 32, it was further held that "right to medical care and health for protection against sickness are fundamental rights to the workmen". On this aspect, there was no disagreement by the majority members. In Consumer Education & Research Centre v. Union of India. Jt 1995(1) SC 637, it was unanimously held by a ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a meaningful life, social security and disablement benefits are integral schemes of socio-economic justice to the people in particular to the middle class and lower middle class and all offendable people. Life insurance coverage is against disablement or in the event of death of the insured economic support for the dependents, social security to livelihood to the insured or the dependents. The appropriate life insurance policy within the paying capacity and means of the insured to pay premia is one of the social security measures envisaged under the Constitution to make right to life meaningful, worth living and right to livelihood a means for sustenance. The question, therefore, is whether the appellant is free to incorporate as a part of its business principles, any term of its choice. It is true that the appellant is entitled to accept insurance policy from a person possessed of health with first class life and before acceptance of the policy the insured is required to undergo medical examination as per policy at his expense to satisfy his condition of health. The question is whether the term policy needs to be restricted only to the employees of Govt., quasi-government or rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner nor the respondent has any right to enter into a contract but they are entitled to equal treatment with others who offer tender or quotations for the purchase of the goods services etc.. This privilege arises it is the Government which trading with the public and the democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions. Privilege is a form of liberty as opposed to a duty. When public element is involved in the activities of the Government, then there should be fairness and equality. If the State does enter into a contract, it must do so fairly without discrimination and without unfair procedure. Exclusion of a member of the public from dealing, prevents him from entering into lawful contractual relations and discriminates him in favour of other people. Though the State is entitled to impose reasonable conditions but arbitrary conditions prevents entering into contractual relations with the State. The individual is entitled to fair and equal treatment with others. A duty to act fairly can be interpreted as meaning a duty to observe certain aspects of rules of natural justice. The legitimate expectation cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o meet socio-economic challenges under rule of law and have to be met either by discarding the old and unsuitable or adjusting legal system to the changing socio-economic scenario. Banjaman Cardozo has stated in his "Judicial Process" at p.168, that "the great tides and currents which engulf the rest of men do not turn aside in their course and pass the Judges idle by". Every action of the public authority or the person acting in public interest or its acts give rise to public element, should be guided by public interest. It is the exercise of the public power or action hedged with public element becomes open to challenge. If it is shown that the exercise of the power is arbitrary unjust and unfair, it should be no answer for the State its instrumentality, public authority or person whose acts have the insignia of public element to say that their actions are in the field of private law and they are free to prescribe any conditions or limitations in their actions as private citizens, simplicitor, do in the field of private law. Its actions must be based on some rational and relevant principles. It must not be guided by irrational or irrelevant considerations. Every administrative de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Corporation must act in accordance with certain constitutional conscience and whether they have so acted must be discernible from the conduct of such Corporations. Every activity of public authority must be informed by reasons and guided by the public interest. All exercise of discretion or power by public authority must be judged by that standard. In that case when the building owned by the port trust was exempted from the Rent Act, on terminating the tenancy for development when possession was sought to be taken, it was challenged under Article 226 that the action of the port trust was arbitrary and no public interest would be served by terminating the tenancy. In that context, this Court held that even in contractual relations the Court cannot ignore that the public authority must have constitutional conscience so that any interpretation put up must be to avoid arbitrary action, lest the authority would be permitted to flourish as imperium a imperia. Whatever be the activity of the public authority, it must meet the test of Article 14 and judicial review strikes an arbitrary action. In Mahabir Auto Stores v. India Oil Corporation, AIR 1990 SC 1031, it was held that the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration and in a manner that is reasonable, relevant and germane to effectuate the purpose for public good and in general public interest and it must not take any irrelevant or irrational factors into consideration or arbitrary in its decision. Duty to act fairly is part of fair procedure envisaged under Articles 14 and 21. Every activity of the public authority or those under public duty or obligation must be informed by reason and guided by the public interest. In Kumari Shrilekha Vidyarthi v. State of U.P., (1991)1 SCC 212, this Court in paragraph 22 pointed out that the private parties are concerned only with their personal interest but the public authority are expected to act for public good and in public interest. The impact of every action is also on public interest. It imposes public law obligation and impress with that character, the contracts made by the State or its instrumentality. "It is a different matter that the scope of judicial review in respect of disputes falling within the domain of contractual obligations may be more limited and in doubtful cases the parties may be relegated to the adjudication of their rights by resort to remedies provided for adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tality, any public authority or person whose actions bear insignia of public law element or public character are amendable to judicial review and the validity of such an action would be tasted on the anvil of Article 14. While exercising the power under Article 226 the Court would be circumspect to adjudicate the disputes arising out of the contract depending on the facts and circumstances in a given case. The distinction between the public law remedy and private law field cannot be demarcated with precision. Each case has to be examined on its own facts and circumstances to find out the nature of the activity or scope and nature of the controversy. The distinction between public law and private law remedy is now narrowed down. The actions of the appellants bears public character with an imprint of public interest element in their offers with terms and conditions mentioned in the appropriate table inviting the public to enter into contract of life insurance. It is not a pure and simple private law dispute without any insignia of public element. Therefore, we have no hesitation to hold that the writ petition is maintainable to test the validity of the conditions laid in Table 58 ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble 58. It is seen that the term policy under Table 58 is the cheapest and accessible policy to the people and that the life of the policy is 5 to 7 years and the insurable lives are upto 50 years. Before acceptance of the policy the appellants also have the medical report submitted by the proposed policy holder at his expense. Though leave record of the government employees or those working in semi- government or reputed commercial firms has been introduced at a later stage, it may not by itself be a fool proof of the good health of the concerned proposed policy holders. It would appear that the appellants have adopted a soft and easy course. The class of the employees sought to be covered under policy would, by and large generally be those already insured under whole life policy or endowment policy. Extending the Table 58 policy again to 10% of such a class from total population may not always be more successful apart, extending the benefit to other people who can afford to take the policy and continue to pay the premium would ensure social security. It would percolate not only to the salaried class to whom other policies stood extended but also larger segments not only in urban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A. Schroeder Music Publishing Co. Ltd. V. Macaulay (Formerly Instone), 1974(1) W..L.R. 1308, House of Lords considered and held that a party to a contract would be relieved from the terms of the contract. In the course of his speech learned Lord Deplock outlined the theory of unreasonableness or unfaairness of the bargain to relieve a party from the contract when the relative bargaining power of the parties was not equal. In that case the song writer had contracted with the publisher the terms more onerous to him and favourable to the publisher. The song writer was relieved from the bargain of the contract on the theory of restraint trade opposed to public policy. The distinction was made even in respect of standard forms of contract emphasising that when the parties in a commercial transaction having equal bargaining power have adopted the standard form of contract, it was intended to be binding on the parties. The court would not relieve the party from such a contract but the contracts are between the parties to it, or approved by any organization representing the interests of the weaker party, they have been directed by that party whose bargaining power, either exercised alone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e weak? We have a Constitution for our country. Our judges are bound by their oath to "uphold the Constitution and the laws". The Constitution was enacted to secure to all the citizens of this country social and economic justice. Article 14 of the Constitution guarantees to all persons equality before the law and the equal protection of the laws. The principle deducible from the above discussions on this part of the case is in consonance with right and reason, intended to secure social and economic justice and conforms to the mandate of the great equality clause in article 14. This principle is that the courts will not enforce and will, when called upon to do so, strike an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this type. No court can visualize the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vast infrastructural organisations and with the State, through its instrumentalities and agencies has been entering into almost every branch of industry and commerce and field of service. There can be myriad situations which result in unfair and unreasonable bargain between parties possess wholly disproportionate and unequal bargaining power. The court must judge each case on its own facts and circumstances. While approving the ratio in Brojonath's case per majority, it was held that Regulation 9 was unconstitutional. In USA, the standard forms of contracts are called 'Contracts of Adhesion". Assistant Professor Todd D. Rakoff of Harvard University in his Contracts of Adhesion 1982-83, 95 Harvard Law Review p.1174 surveyed the development of the standard form of contracts. The social phenomenon and the legal effect of the standard form of contracts is stated at page 1191 that if the presumption of enforceability is retained, it threatens to continue generate undesirable results, thus : "This expansion is made manifest by the explanatory comment, which states that reason to believe that the adherent would not knowingly have singed may be inferred from the fact that the term is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Arthur Leff from the latter's article "Unconscionability of the Code" published in 1967) 115 U.Pen. Law Review 485 at 494 stating that: "The purpose of contract law is not simply to create conditions of liability, but also to respond to the social process of promising." He stated that since the law does not enforce a promise as such, a legal analysis of bargain of promise must start with a question whether such promise is enforceable at all. He further quoted Aurthor Leff analysing the distinction between procedural and substantive unconscionability. Procedural unconscionability is fault on unfairness in the bargaining process and substantive unconscionability is fault or unfairness in the bargaining outcome-that is, unfairness of terms. Quoting S.208 of the Restatement (second) of Contracts, he stated at page 752 that : "Over the last fifteen years, however, there have been strong indications that the principle of unconscionability authorises a review of elements well beyond unfair surprise, including, in appropriate cases, fairness of terms." He further states that : "Theoretically it is possible for a contract to be oppressive taken as a whole, even though there is no weak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n closer investigation, turn out lopsided because of particular circumstances of the case." He further expressed the view that the test of a reasonable or average man is to be applied in preventing exploitation of the under-privileged (vide pages 768 to 774). He ends up his discussion at page 814 that the doctrine of "unconscionability is a residual category of shifting content and expansible nature." In v. Raghunadha Rao vs. State of A.P. and others, 1988 (1) Andhra law Times 461, the Andhra pradesh High Court considered the constitutionality of Clauses 11, 29, 59, 62(b) and 73, the A.P. Standard Specifications on the anvil of Articles 14, 19(1) (g), the dotted lines contract entered by the petitioner therein under Article 298 and declared clause 73 an arbitration clause of reference to officers that dealt with the contract as arbitrary and ultravirus of the Constitution. It is, therefore, the settled law that if a contract or a clause in a contract is found unreasonable or unfair or irrational one must look to the relative bargaining power of the contracting parties. In dotted line contracts there would be no occasion for a weaker party to bargain or to assume to have equal ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be open to the appellants to accept or reject, as the case may be, of the proposal. The question then is whether a clause in the contract is severable by an order of the court. It is settled law that the arms of the court are long enough to reach injustice wherever it is found and the court would mould the relief appropriately to meet the peculiar and complicated requirements of the country vide Dwarkanath v. Income Tax Officer, Kanpur, 1965 (3) SCR 536 at 540, Andi Mukta Trust v. V.R. Rudani, 1989(2) SCC 691 at 699-700, Unni Krishnan v. State of A.P., 1993 (1) SCC 645 at 693-97 and Hochitief Gammon v. State of Orissa, 1975 (2) SCC 649 at 656. In M.J. Sivani and others v. State of Karnataka, S.L.P. No.11012/1991 etc. dated April 17, 1995, it was contended that since the High Court held that a part of the notification was inapplicable to the licence for Video games, it was not severable from the rest of the notification and the whole notification must be declared to be ultra vires or inapplicable to video games. Rejecting the contention of the licensees on that ground, this Court held that the entire order did not become invalid due to inapplicability of a particular provision or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant is free to enforce Table 58 policy with all eligible lives. The declaration given, therefore, is perfectly valid. The offending part is severable from the rest of the conditions. We have, therefore, no hesitation to hold that in issuing a general life insurance policy of any type, public element is inherent in prescription of terms and conditions therein. The appellants or any person or authority in the field of insurance owe a public duty to evolve their policies subject to such reasonable, just and fair terms and conditions accessible to all the segments of the society for insuring the lives of eligible persons. The eligibility conditions must be conformable to the Preamble, fundamental rights and the directive principles of the Constitution. The term policy under Table 58 is declared to be accessible and beneficial to the large segments of the Indian society. The rates of premium must also be reasonable and accessible. Accordingly, we hold that the declaration given by the High Court is not vitiated by any manifest error of law warranting interference. It may be made clear that with a view to make the policy viable and easily available to the general public, it may ..... X X X X Extracts X X X X X X X X Extracts X X X X
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