TaxTMI 
TaxTMI 
1995 (5) TMI 247
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.... to the LIC under Table 58 on behalf of individual respondents and promised to cover under Table 58 other 9 crores uninsured households, the LIC turned them down. Consequently, after issuance of a notice through counsel on September 14, 1980, the respondents filed the above writ petition. The conditions imposed and denial to accept policies sought under Table 58 were assailed as arbitrary, discriminatory violating Articles 14, 19(1)(g) and right to life in Article 21 of the Constitution. The High Court while upholding that prescription of conditions for 1st class lives as eligibility and other criteria laid down in the policy under Table 58 are neither unjust nor arbitrary, declared a part of the conditions, namely, "Further, proposals for assurance under the plan will be entertained only from persons in Government or Quasi-Government organisation or a reputed commercial firm which can furnish details of leave taken during the preceding year under Table 58" as subversive of equality and, therefore, constitutionally invalid. Accordingly, it was struck down. The Corporation filed the appeal against the portion that was struck down and the respondents filed the cross appeal against th....
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....tions in the policy do disclose that they have been formulated to effectuate the policy under Table 58. Taking into consideration the minimum and maximum age enumerated therein, all the policy holders under Table 58 are treated as a class. Restrictions imposed or the terms and conditions contained therein are reasonable. There is no invidious discrimination meted out to the respondents. It is open to the policy holders to have term policy converted into endowment or whole life policy. The policy of denying convetible risk, policy to female lives before the expiry of two years of the term policy, all eligible persons are entitled to convert them into whole life policy or endowment policy before expiry of two years. The premium payable on the term policy is very marginal to benefit such of those persons at the threshold of their career. In the event of the said conversion, there is no need for fresh medical report. Since the policy is commercial contract, the High Court has no power or jurisdiction to interfere with contractual relations declaring them as invalid and unconstitutional. Shri Dhawan, learned Senior counsel for the respondents resisted these contentions on the anvil o....
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....to consideration the factors: (a) present condition of health and physical build of the person whose life has to be insured; (b) his/her personal history i.e., record of illness suffered in the past by the person whose life has to be insured, risks to be covered and the person's habits in general; (c) family history, i.e. record of health and longevity of members of the family of the person to be insured; (d) occupation and environment of the person whose life has to be insured; and (e) the likelihood of any change in the occupation of the person whose life has to be insured, calculated to increase the risk of his/her life. Based thereon, the amount of premium would be charged depending upon whether a particular policy is a term insurance or an endowment or whole life policy etc. based on actuarial method. The terms and conditions subject to which the risk is to be covered, undoubtedly, would play a vital role in deciding the amount of premium payable and the conditions on which the policy is to be issued. In that behalf, it would be necessary to foresee mortality among insured lives within a relatively narrow margin of error. The insurer, therefore would be entitled to devise its ....
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....sideration, was intended to cover not only the elite and employed in government, semi-government and reputed commercial establishments but also need to cover wider public, self-employed or those working in unorganised sectors. The term insurance policy under table 58 is beneficial to all sections and restricted to lives in specified area alone. The original clause in Table 58 reads thus:- "The rates of premium herein apply to male lives who, on the basis of the medical examiner's report, personal and family history etc. are considered by the Corporation as first class lives. Persons over 45 years nearer birthday at entry and those following hazardous occupation including persons in the Armed Forces will not be eligible for insurances under this plan. Proposals for policies under this scheme will be entertained only from persons in Government or quasi-government or the service of reputed commercial firms. The medical examination of the proposer will be arranged only after the proposal is first submitted to the Divisional Office of the Corporation and its approval to proceedings with medical examination is obtained. The cost of the medical examination will have to be borne by the pro....
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....hed beofore us which would indicate that during the year 1985 to 1989 among all the policies, the term insurance policy was the most popular one, which covered large number of lives. It is true that convertible whole life insurance was intended to meet the needs of a young person who is on the threshold of his career to provide maximum insurance with a minimum cost and at the same time intended to offer a flexible contract which can be altered into an endowment insurance without any need to pay premia after the age of 70 and without further medical examination. Convertible term insurance is designed to meet the needs of those who are initially unable to pay premium required for whole life or endowment insurance policy and hope to be able to pay for such a policy in the near future. Fixed term convertible is permissible except in the last two years without any further medical examination. As stated earlier at the end of the term, the assured will not get anything, if he survives. On his death, the nominee or the dependents will get the assured amount but it could be seen the capacity to pay the premium would also be a relevant factor. The premium for Rs.1000/- under the policy as....
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....e common good. Social security has been assured under Article 41 and Article 47 imposes a positive duty on the State to raise the standard of living and to improve public health. Article 25 of the Universal Declaration of Human Rights envisages that everyone has the right to standard of living adequate for the health and well-being of himself and of his family including food, clothing, housing and medical care and necessary social services and the right to security in the event of unemployment sickness, disability, widowhood, old age or other lack of livelihood in the circumstances beyond his control. Article 7 of the International Covenant on Economic Rights equally assures right to everyone to the enjoyment of just and favourable conditions of work which ensures not only adequate remuneration and fair wages but also decent living to the workers for themselves and their families in accordance with the provisions of the Covenant. Covenant on Right to development enjoins the State to provide facilities and opportunities to make rights a reality and truism, so as to make these rights meaningful. A Constitution Bench of this Court in D.S. Nakara v. Union of India, 1983 (2) SCR 165 ....
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.... members. In Consumer Education & Research Centre v. Union of India. Jt 1995(1) SC 637, it was unanimously held by a bench of three Judges that right to health to a worker is an integral facet of meaningful right to life and have not only a meaningful existance but also robust health and vigour without which worker would lead life of misery. Lack of health denudes his livelihood. Compelling economic necessity to work in an industry exposed to health hazards due to indigence to bread-winning to himself and his dependents, should not be at the cost of the health and vigour of the workman. Facilities and opportunities, as enjoined in Article 38, should be provided to protect the health of the workman. Right to human dignity, development of personality, social protection are fundamental rights to the workmen. Medical facilities to protect the health of the workers are fundamental rights to workmen. It was, therefore, held that "the right to health, medical aid and to protect the health and the vigour of a worker while in service or post retirement is a fundamental right under Article 21 read with Articles 39(e), 41, 43, 48-A of the Constitution of India and fundamental human right to m....
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..... The question is whether the term policy needs to be restricted only to the employees of Govt., quasi-government or reputed commercial firms and whether such condition is just, fair and reasonable or based on reasonable classification consistent with Articles 14 and 21 of the Constitution. The contention of the appellants is that life insurance policy being a contract of insurance becomes a binding contract on appellants' acceptance. Until a contract is entered into, the proposed insured does not acquire any right in insurance policy. The terms of the contract under Table 58 cannot be declared ultra vires before a concluded contract emerged. Contract of insurance operates in the arena of contractual relations. Refusal to enter into contract does not infringe any fundamental right or a legal right nor the respondents are entitled to compel the appellants to enter into favourable relations when they did not fulfill the essential terms of the proposal. Therefore, writ petition is not maintainable to enforce such rights in embryo nor they be entitled to declaration in their favour. It is true that life insurance business as defined under s.2(11) of the Insurance Act, 1938, is busin....
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.... interpreted as meaning a duty to observe certain aspects of rules of natural justice. The legitimate expectation cannot be denied without fair procedure. In that case black listing, without an opportunity was held to be an unfair procedure offending Article 14. In Saghir Ahmad v. State of U.P., 1955(1) SCR 707, the Constitution Bench at the earliest buried fathom deep that the State is free to carry on trade or business in the same position as a private trader. In A. Sanjeevi Naidu v. State of Madras, 1970(3) SCR 505, another Constitution Bench held that the acts of the authorised officers are the acts of the State itself and not as the delegates of the Government. In Ramana Dayaram Shetty v. International Airport Authority of India, 1979(3) SCR 1014, another Constitution Bench held that in a welfare State in regulating and dispensing special services including contracts, the citizen derives rights or privileges by entering into favourable relations with the Government. The Government, therefore, cannot anchor its role as a private person. The exercise of the power or discrimination to award contract etc. must be structured by rational, relevant and non-discriminatory standards....
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....me rational and relevant principles. It must not be guided by irrational or irrelevant considerations. Every administrative decision must be hedged by reasons. The Administrative Law by Wade, 5th Ed. at p.513 in Chapter 16, Part IV dealing with remedies and liabilities, stated thus:- "Until a short time ago anomalies used to be caused by the fact that the remedies employed in Administrative Law belong to two different families. There is the family of ordinary private law remedies such as damages, injunction and declaration and there is a special family of public law remedies particularly Certiorari, Prohibition and Mandamus, collectively known as prerogative remedies. Within each family, the various remedies can be sought separately or together or in the alternative. But each family had its own distinct procedure". At page 514 it was elaborated that "this difficulty was removed in 1977 by the provision of a comprehensive, "application for judicial review", under which remedies in both facilities became interchangeable." At page 573 with the heading `Application for Judicial Review' in Chapter 17, it is stated thus:- "All the remedies mentioned are then made interchangeable....
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....dicial review strikes an arbitrary action. In Mahabir Auto Stores v. India Oil Corporation, AIR 1990 SC 1031, it was held that the State when acting in its executive power, enters into contractual relations with the individual, Article 14 would be applicable to the exercise of the power. The action of the State or its instrumentality can be checked under Article 14. Their action must be subject to rule of law. If the governmental action even in the matter of entering or not entering into contracts, fails to satisfy the test of reasonableness, the same would be unreasonable. Rule of reason and rule against arbitrariness and discrimination, rules of fair play, natural justice are part of the rule of law applicable in situation or action by State/instrumentality in dealing with citizens. Even though the rights of the citizens, therefore, are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject to judicial review on the touchstone of relevance and reasonableness, fair play and natural justice, equality and non-discrimination. It is well settled that there can be "malice in law". It was also furt....
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....more limited and in doubtful cases the parties may be relegated to the adjudication of their rights by resort to remedies provided for adjudication of purely contractual disputes. However, to the extent, challenge is made on the ground of violation of Article 14 by alleging that the impugned act is arbitrary, unfair or unreasonable, the fact that the dispute also falls within the domain of contractual obligations would not relieve the State of its obligation to comply with the basic requirements of Article 14. To this extent, the obligation is of a public character invariably in every case irrespective of there being any other right or obligation in addition thereto. An additional contractual obligation cannot divest the claimant of the guarantee under Article 14 of nonarbitrariness at the hands of the State in any of its actions". In Food Corporation of India v. M/s Kamdhenu Cattle Feed Industries, (1993)1 SCC 71 at p. 76 in para 8, this Court held that "the mere reasonable or legitimate expectation of a citizen may not by itself be a distinct enforceable right, but failure to consider and give due weight to it may render the decision arbitrary, and this is how the requirement of ....
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....t. Therefore, we have no hesitation to hold that the writ petition is maintainable to test the validity of the conditions laid in Table 58 term policy and the party need not be relegated to a civil action. The contention of the appellants is that the offending clause is a valid classification. The salaried group of lives from the government, semi-government or reputed commercial institutions from a class with a view to identify the health conditions, the policy was applied to that class of lives. No mandamus would be issued to declare the classification as unconstitutional when it bears reasonable nexus to the object and there is intelligible differentia between the salaried lives and the rest. The High Court, therefore, was wrong in declaring the offending clause as arbitrary violating Article 14. It is true that the appellant is entitled to issue the policy applicable to a particular group or class of lives entitled to avail contract of insurance with the appellant but a class or a group does mean that the classification meets the demand of equality, fairness and justness. The doctrine of classification is only a subsidiary rule evolved by the courts to give practical contend ....
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....al security. It would percolate not only to the salaried class to whom other policies stood extended but also larger segments not only in urban areas and also in the rural areas would reap the benefit. Though assured employment sources of income may be easily tapable source, policy being volitious it may not be difficult for the people in other private sector, unorganised sector etc, or people in self-employed sector to take policy under Table 58. Sezhivan Committee itself had recommended and it would be obvious that pursuant thereto Table 58 also was introduced into the market to benefit those lives in rural areas or in the unorganised sectors. Confining the policy under Table 58 to already covered salaried sections would, therefore, be unreasonable and arbitrary and would deprive large segments in the rural areas or unorganised or self- employed would be unjust and irrational and unfair. An unfair and untenable or irrational clause in a contract is also unjust amenable to judicial review. In common law a party was relieved from such contract. In Gillespie Brothers & Co. Ltd. v. Roy Bowles Transport Ltd., 1973 (1) Q.B. 400, Lord Denning for the first time construing the indemnity ....
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....any organization representing the interests of the weaker party, they have been directed by that party whose bargaining power, either exercised alone or in conjunction with others providing similar goods or services, enables him to say: "If you want these goods or services at all, these are the only terms on which they are obtainable. Take it or leave it." In Levison and Anr. v. Steam Carpet Co. Ltd., 1978 (1) Q.B. 69, Lord Denning M.R. reiterated the unreasonable clause in the contract would be applied to the standard from of contract where there was inequality of bargaining power. In Photo Production Ltd. v. Securicor Transport Ltd, 1980 A.C. 827, considering the Unfair Contract Terms Act, 1977, Lord Wilberforce during the course of his speech emphasised the unequal bargaining power as an invalidating factor upheld the contract in that case since it was commercial bargain between two competent party to enter into a contract on equal bargaining power. Lord Deplock also reiterated his earlier view. Lord Scarman agreeing with Lord Wilberforce described that a commercial dispute between the parties well able to look after themselves, in such a situation what the parties have agree....
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....irs 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 contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations in which the speaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them. It will also apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a set of rules as part of the contract, however unfair, unreasonable and unconscionable a clause in that contract or form or rules may be. This principle, however, will not apply where the bargaining power of contracting parties is equal or almost equal. This principle may not apply where both parties are businessmen and the contract is a commercial transaction. In today's complex world of giant corporations with their vast infra-structural organiz....
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....irable 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 bizarre or oppressive, from the fact that it eviscerates the non-standard terms explicitly agreed to or from the fact that it eliminates the dominant purpose of the transaction." At page 1193, it was further stated that : "In the last decade or two, courts analyzing contracts of adhesion have applied the categories of public interest and superior bargaining power to a substantially broader set of situations than would fit within the analogous doctrines of ordinary contract law concerning business affected with a public interest and transactions tainted by economic duress. At page 1215, he further stated: "The problems in Leff's and Slawson's analyses are fundamental, and indeed would seem to inhere in any attempt to justify from a public law perspective the proposition that form terms have some initial, yet often defensible, validity. The public law model focuses on the aggregate ordering of stand....
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....tions 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 weakness in the bargaining process." Professor Eisenberg propounds the basic test thus: "Whether the clause involved are so one-sided as to be unconscionable under the circumstances existing at the time of making of the contract - The principle is one of the prevention of oppression and unfair surprise - and not of distrubance of allocation of the risks because of superior bargaining power." He further stated at page 799 that : "Over the past thirty years a new paradigmatic principle - unconscionability - has emerged. This principle expalins and justifies the limits that should be placed upon the bargain principle on the basis of the equality of a bargain." At page 800, he stated that : "The paradigma (unconscionability) ....
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.... 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 bargaining power. He has either to accept or leave the services or goods in terms of the dotted line contract. His option would be either to accept the unreasonable or unfair terms or forego the service forever. With a view to have the services of the goods, the party enters into a contract with unreasonable or unfair terms contained therein and he would be left with no option but to sign the contract. In National Textiles Workers' Union etc. V. P.R. Ramkrishnan, 1983 (1) SCR 922, the constitution bench per majority held that the socio-economic objections set down in the dir....
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....45 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 a clause in the general order unless the invalid part is inextricably interconnected with the valid part. The court would be entitled to consider whether the rule as a whole or in part is valid or becomes invalid or inapplicable. On finding that to the extent of the rule was not relevant or invalid, the court is entitled to set aside or direct to disregard the invalid or inapplicable part leaving the rest intact and operative. In that case Para 3(2) of the notification for licencing public places or the places of public resort or amusement for conducting video in gamin....