TMI Blog1995 (5) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. - CIVIL APPEAL NO.7711 OF 1994 AND 5651 OF 1995 - - - Dated:- 10-5-1995 - RAMASWAMY, K. AND HANSARIA B.L. , JJ. For the Appellant : Mr. K. Ramaswamy, Mr. N. Venkatachala, Mr. Harish Salve, Sr. Adv. Mr. Rajiv Mehta, Mr. Kailash Vasdev and Ms.Meenakshi Grover, Advs. For the Respondent: Mr. Rajiv Dhawan, Sr. Adv. Mr. Arvind Kr.Sharma and Mr. P.H. Parekh, Advs. JUDGMENT K.RAMASWAMY.J.: Leave granted. Delay condoned. The appeal and cross appeal arise from the Division Bench judgment of Gujarat High Court dated January 31, 1994 in Spl. Civil Application No.2614 of 1980. On August 25, 1980 one Prof. Manubhai Shah Executive Trustee of Respondent No.1 and Mr.D.N.Dalal sought policies under Table 58. Similarly in D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a particular policy and their viability. The High Court was not justified in interfering with matters based on economic criteria and commercial contracts, in particular, after having recorded findings referred to hereinbefore in favour of the corporation, the High Court committed error of law in declaring the offending portion of the policy as arbitrary and violative of Articles 14, 19 and 21 of the Constitution. The actuarial principles are the calculations made by actuaries taking into consideration: a) present condition of health and physical build of the life to be insured; b) personal and family history, occupation, likelihood of any change in the occupation etc. The premium to be charged in a particular policy is calculated by actuarial method. These conditions have been imposed taking into consideration risk to be covered to see that the plan is successfully operated. The afore-stated conditions are necessary to forecast mortality among insured lives within a relatively narrow margin of error, depending upon general population statistics based on insured lives. The tables were framed to cover the risk of all classes of people to suit all the classes. There are several ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in conformity with the rights in Parts III and IV of the Constitution. It has no power to impose any unconstitutional conditions in the contract, no classification much less valid classification has been made between salaried employees in Government, Semigovernment, organised sectors or reputed commercial organisations, self-employed or unorganised sectors. The term insurance policy being cheaper premium helps large segments of poor and lower middle class persons. Sezhivan Committee on improvement of Insurance, the LIC recommended popularisation in urban and rural areas policies under Table 58. The whole life or endowment policies are not easily accessible to the poorer segments of the society. Only term insurance under Table 58 policy is more attractive and easily accessible to those segments of the society. Imposition of conditions including the one struck down by the High Court are, therefore, unconstitutional and impermissible. We have given our anxious and careful consideration to the respective contentions, since our answers to the questions involved are bound to have far reaching effect on the business of life insurance, we have minutely examined all the questions beari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inly on upper strata and employed sections of the population which has a regular income and saving potential. The obligatory linking of life insurance to savings inherent in the conventional individual assurance plans and the LIC's concentration on this type of business together, had the effect of denying life insurance cover to the vast section of the people who do not have regular income and whose savings potential is low; (iii) as a result of the above, only about 10% of the insurable male lives in the country have been provided cover against death. That too on the salary earning classes and persons in the higher income groups who take out LIC mainly because of the tax relief available. The coverage of persons in rural areas and of those employed in the unorganised sector in the urban areas in meagre; (vi) Life insurance in India can still be a viable savings medium, as it is in U.K., provided the LIC is enabled to improve substantially the yield on its investment and to control effectively its expenses of management. In para 13.18, the report further states that "there is one other plan which the Committee feels the LIC ought to introduce and that is a level premium term insura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S 7 YEARS 58 (Convertible Term Assurance) Rs.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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Premia for Rs.50,000/- is as under : Age Policy Convertible Life Whole Life Term Policy 5 years 6 years 7 years 35 Rs.50,000 Rs.912.5 897.5 325 327.5 332.5 It will, thus, be clear that the Term Policy is a demonstrably cheap and efficacious short term policy and help those badly in need of it. From this material matrix, the question emerges whether the appellant is justified in law in restricting the term policy only to the specified class, namely, salaried persons in Government, quasi-Government or reputed commercial firms. The Preamble, the arch of the Constitution, assures socio- economic justice to all the Indian citizens in matters of equality of status and of opportunity with assurance to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o hold one way or the other. In Olga Tellis v. Bombay Municipal Corporation, 1985 Supp(2) SCR 51, another Constitution Bench of this Court held that the right to life inculdes right to livelihood because no person can live without the means of living i.e. means of livelihood. If the right to livelihood is not treated as part of constitutional right to life, the easiest way of depriving a person of his right to life would be to deprive him of his means of livelihood to the point of abrogation. Such deprivation would not only denude the life of its effective content and meaningfulness but it would make life impossible to live. Interpreting Article 19(e) vis-a-vis Article 25(2) of the Universal Declaration of the Human Right and Article 7 of the International Convention of Economic, Social and Cultural Rights, one of us (K. Ramaswamy, J.) in C.E.S.C. Ltd. v. Subhash Chandra Bose, (1992)1 SCC 441 at p.462 in 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, so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on should be so given as to give effect to right to medical benefit which is a fundamental right to the workman. In Murlidhar Dayandeo Kesekar v. Vishwanath Pandu Barde (C.A.No.952/77) on February 22, 1995, this Court held that right to economic empowerment to the poor, disadvantaged tribes and depressed and oppressed Dalits, is a fundamental right to make their right to life and dignity of person meaningful and worth living. It was also held that socio-economic democracy is sine qua non to make political democracy, a truly participatory democracy and a truism for unity and integrity of Bharat. It would thus be well settled law that the Preamble Chapter of Fundamental Rights and Directive Principles accord right to livelihood as a meaningful life, social security and disablement benefits are integral schemes of socio-economic justice to the people in particular to the middle class and lower middle class and all offendable people. Life insurance coverage is against disablement or in the event of death of the insured economic support for the dependents, social security to livelihood to the insured or the dependents. The appropriate life insurance policy within the paying capacity and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitutional conditions including that which denied the right of entering into the contract, limiting only to a class of persons under a particular policy? We make it clear at this juncture that the insurer is free to evolve a policy based on business principles and conditions before floating the policy to the general public offering on insurance of the life of the insured but as seen earlier, the insurance being a social security measure, it should be consistent with the constitutional animation and conscience of socioeconomic justice adumbrated in the Constitution as elucidated hereinbefore. In M/s Erusian Equipment Chemicals Ltd. v. State of West Bengal. 1975(1) SCC 70 at 75 in para 17, this Court held that neither the petitioner nor the respondent has any right to enter into a contract but they are entitled to equal treatment with others who offer tender or quotations for the purchase of the goods services etc.. This privilege arises it is the Government which trading with the public and the democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions. Privilege is a form of liberty as opposed to a duty. When public ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, the Court must adopt such standards "as against the alternative of permitting them to flourish as an imperium in imperio". It was further held that law has to grow in order to satisfy the needs of the fast changing society and keep abreast with the economic developments taking place in the country. As new situations arise the law has to be evolved in order to meet the challenge of such new situations. Law cannot afford to remain static. The Court has to evolve new principles and lay down new norms which arise in a highly industrialised economy. Therefore, when new changes are thrown open, the law must grow as a social engineering to meet the challenges and every endeavour should be made to cope with the contemporary demands to meet socio-economic challenges under rule of law and have to be met either by discarding the old and unsuitable or adjusting legal system to the changing socio-economic scenario. Banjaman Cardozo has stated in his "Judicial Process" at p.168, that "the great tides and currents which engulf the rest of men do not turn aside in their course and pass the Judges idle by". Every action of the public authority or the person acting in public interest or its act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court will examine actions of State if they pertain to the public law domain and refrain from examining them if they pertain to the private law field. The difficulty will lie in demarcating the frontier between the public law domain and the private law field. This is impossible to draw the line with precession and we do not want to attempt it. The question must be decided in each case with reference to the particular action, the activity in which the State or the instrumentality of the State is engaged when performing the action, the public law or private law character of the action and a host of other relevant circumstances." In Dwarkadas Marfatia Sons v. Board of Trustees of the Port of Bombay, 1989(2) SCR 751, it was held that the Corporation must act in accordance with certain constitutional conscience and whether they have so acted must be discernible from the conduct of such Corporations. Every activity of public authority must be informed by reasons and guided by the public interest. All exercise of discretion or power by public authority must be judged by that standard. In that case when the building owned by the port trust was exempted from the Rent Act, on terminatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute arising out of a contract would, therefore, depend upon facts and circumstances in a given case. The distinction between public law remedy and private law field cannot be demarcated with precision. Each case will be examined on its facts and circumstances to find out the nature of the activity, scope and nature of the controversy. The distinction between public law and private law remedy has now become too thin and practicably obliterated. In the sphere of contractual relations the State, its instrumentality, public authorities or those whose acts bear insignia of public element, action to public duty or obligation are enjoined to act in a manner i.e. fair, just and equitable, after taking objectively all the relevant options into consideration and in a manner that is reasonable, relevant and germane to effectuate the purpose for public good and in general public interest and it must not take any irrelevant or irrational factors into consideration or arbitrary in its decision. Duty to act fairly is part of fair procedure envisaged under Articles 14 and 21. Every activity of the public authority or those under public duty or obligation must be informed by reason and guided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CC 398, this Court held that even in contractual matters public authorities have to act fairly; and if they fail to do so approach under Article 226 would always be permissible because that would amount to violation of Article 14 of the Constitution. The ratio in General Assurance Society Ltd. v. Chandumull Jain, 1966(3) SCR 500, relied on by the appellants that tests laid therein to construe the terms of insurance contracts bears no relevance to determine the constitutional conscience of the appellant in fixing the terms and conditions in Table 58 and of their justness and fairness on the touch stone of public element. The arms of the High Court is not shackled with technical rules or of procedure. The actions of the State, its instrumentality, any public authority or person whose actions bear insignia of public law element or public character are amendable to judicial review and the validity of such an action would be tasted on the anvil of Article 14. While exercising the power under Article 226 the Court would be circumspect to adjudicate the disputes arising out of the contract depending on the facts and circumstances in a given case. The distinction between the public law rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lasticity for egalitarian path finder. Lest, the classification would deny equality to the larger segments of the society. The classification based on employment in government, semi-government and reputed commercial firms has the insidious and inevitable effect of excluding lives in vast rural and urban areas engaged in unorganised or self- employed sectors to have life insurance offending Article 14 of the Constitution and socio-economic justice. It is true that the appellants have to successfully operate the life insurance plan need to forecast mortality among the insured lives within a relatively narrow margin of error and are entitled to scrutinize the medical history of the lives to be covered under the appropriate policy including Table 58. It is seen that the term policy under Table 58 is the cheapest and accessible policy to the people and that the life of the policy is 5 to 7 years and the insurable lives are upto 50 years. Before acceptance of the policy the appellants also have the medical report submitted by the proposed policy holder at his expense. Though leave record of the government employees or those working in semi- government or reputed commercial firms has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgaining power was enunciated by Lord Denning M.R. and held that one who enters into a contract on terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity........ the one who stipulates for an unfair advantage may be moved solely by his own selfinterest, unconscious of the distress he is bringing to the other........ One who is in extreme need may knowingly consent to a most improvident bargain, solely to relieve the strains in which he finds himself. It would not be meant to suggest that every transaction is saved by independent advice. But the absence of it may be fatal. In A. Schroeder Music Publishing Co. Ltd. V. Macaulay (Formerly Instone), 1974(1) W..L.R. 1308, House of Lords considered and held that a party to a contract would be relieved from the terms of the contract. In the course of his speech learned Lord Deplock outlined the theory of unreasonableness or unfaairness of the bargain to relieve a party from the contract when the relative bargaining power of the parties was not equal. In that case the song ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that an instrumentality of the State cannot impose unconstitutional conditions in statutory rules vis-a-vis its employee to terminate the service of a permanent employee in terms of the rules and held thus: "Should then our courts not advance with the times? Should they still continue to cling to outmoded concepts and outworn ideologies? Should we not adjust our thinking caps to match the fashion of the day? Should all jurisprudential development pass us by, leaving us floundering in the sloughs of nineteenth-century theories? Should the strong be permitted to push the weak to the wall? Should they be allowed to ride roughshod over the weak? Should the courts sit back and watch supinely while the strong trample under 5 foot the rights of the weak? We have a Constitution for our country. Our judges are bound by their oath to "uphold the Constitution and the laws". The Constitution was enacted to secure to all the citizens of this country social and economic justice. Article 14 of the Constitution guarantees to all persons equality before the law and the equal protection of the laws. The principle deducible from the above discussions on this part of the case is in cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ongress, 1990 (1) Supp. SCR 142, one of us K.R.S., J. considered similar contract of service whether consistent with the Constitution. Approving the statement of law by, Chitti on Contract, 25th Edn., Vol.I and is Anson's Law of Contract, p.6-7, held that the freedom of contract must be founded on equality of bargaining power between contracting parties. Though ad idem is assumed, the standard form contract is the rule. The consent or consensus ad idem of a weaker party be totally absent. He must assent to it in terms of the dotted line contract or to forgo the goods or services. The freedom of equal bargaining power is largely an illusion. It was also further held that in paragraph 22 at p.308 that in today's complex world of giant corporations with their vast infrastructural organisations and with the State, through its instrumentalities and agencies has been entering into almost every branch of industry and commerce and field of service. There can be myriad situations which result in 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Gross inequality of bargaining power" or the like (in the usual sense of a wide disparity of economic resources) ought not to be a prerequisite to finding a contract of adhesion. Put simply, the practice of standard form contracting is not based on the exercise of pre-existing market power." All that is necessary is whether the presence of the correlative social role of the drafting party and adherent is available in equal terms is the test. The doctrine of unequal bargaining power, the doctrine of unconscionability "unjust in some sense", etc., were considered and formulated doctrines for applying the amended 211 Restatement (second) of contracts. In his "The Bargain Principle and Its Limits" published in (1982) 95 Har. L.R. page 441, Prof. M.A. Eisenberg quotes Prof. Arthur Leff from the latter's article "Unconscionability of the Code" published in 1967) 115 U.Pen. Law Review 485 at 494 stating that: "The purpose of contract law is not simply to create conditions of liability, but also to respond to the social process of promising." He stated that since the law does not enforce a promise as such, a legal analysis of bargain of promise must start with a question whether su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded that : "Increase in the complexity of some areas of law may be desirable, if it accurately mirrors the increased complexity of social and economic life. Placing limits on the bargain principle involves costs of administration. Failure to place such limits, however, involves still greater costs to the system of justice." M.P. Ellinghaus, Senior Law Lecturer of University of Melbourne in his "In defence of Unconscionability" (1968_1969) 78 Yale Law Journal page 757 at 766 stats that "The relevance of the respective bargaining positions of the parties to the issue of un-conscionability is beyond dispute, although to ask the draftsman for a comprehensive statement of precise nature and scope of this relevance." He stated further at page 767 that bargains "Struck between seeming equals which, on closer investigation, turn out lopsided because of particular circumstances of the case." He further expressed the view that the test of a reasonable or average man is to be applied in preventing exploitation of the under-privileged (vide pages 768 to 774). He ends up his discussion at page 814 that the doctrine of "unconscionability is a residual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fety and healthy conditions of the workmen. The authorities or a private persons or industry are bound by the directives contained in part IV, Part III and the Preamble of the Constitution. It would thus be clear that the right to carry on trade is subject to the directives containing the Constitution the Universal Declaration of Human Rights, European Convention of Social Economic and Cultural right and the Convention on Right to development for socio-economic justice. Social security is a facet of socio-economic justice to the people and a means to livelihood. Since medical report is admittedly a condition precedent for acceptance of the proposal, it would be open to the appellants to have the medical report from its recognised or accredited doctors. On its satisfaction of the health condition of the proposed life to be insured, it would be open to the appellants to accept or reject, as the case may be, of the proposal. The question then is whether a clause in the contract is severable by an order of the court. It is settled law that the arms of the court are long enough to reach injustice wherever it is found and the court would mould the relief appropriately to meet the pec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tractual relations of term policy in Table 58. Their privilege and legitimate expectation to seek acceptance of policy of life insurance are their freedom. Instead they sought for a declaration that the policy confining to only salaried class from government, semi- government or reputed commercial firms is discriminatory offending Article 14. Denial thereof to larger segments violates their constitutional rights. We are of the considered view that they are right. They are not seeking any mandamus to direct the appellants to enter into contract of life insurance with them. The rest of the conditions age etc are valid and do not call for interference. The offending clause extending the benefit only to the salaried class in Government, semi-Government and reputed firms is unconstitutional. Subject to compliance with other terms and conditions, the appellant is free to enforce Table 58 policy with all eligible lives. The declaration given, therefore, is perfectly valid. The offending part is severable from the rest of the conditions. We have, therefore, no hesitation to hold that in issuing a general life insurance policy of any type, public element is inherent in prescription of ter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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