Case: L.I.C. Of India  Vs. Consumer Edn. &amp; Research Centre

2. 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 December, 1978 Respondent Nos. 2 to 4 sought similar polices for convertible term insurance plans for different amounts. In September, 1980 Respondent Nos. 6 and 7 agents of appellants when presented proposals 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 insurance 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 Ist class lives as eligibility and other criteria laid down in the policy under Table 58 are nether 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 ororganisations 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 the findings that went against them.

Court's reasoning:
6. 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 bearing in mind the larger public interest. Life insurance policies based on actuarial Tables and the Policy Holders needs suited to their requirements. It appears that LIC has, in assessing the risk, taken into consideration the factors: (a) present condition of health and physical build of the person whose life has to be insured; (b) his/her 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 persons 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 plans, relative terms and conditions, its advantages and other relevant factors. Therefore, the insurer would be entitled to specify eligibility criteria in various plans of life insurance. Each policy differs in its contents and conditions, the degree of risk, the amount of premium payable in that behalf and also mortality rate.7. Sezhiyan Committee Report after its elaborate study of the working of the LIC on insurance recommended in the year 1980 for improvement on several factors of the working system. It had recommended to make available policies to wider sections of the people. It analysed diverse life insurance policies in para 13.1(i) and concluded that the cost of providing life insurance through individual life insurance policies is high and beyond the means of a large section of the population both in urban and rural areas; (ii) in pursuance of one of its basic objectives, namely, mobilisation of savings through life insurance, the LIC has been concentrating its efforts mainly on upper strata and employed sections of the population which has a regular income and saving potential. The obligatory linking of life insurance to savings inherent in the conventional individual assurance plans and the LICs 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 insurance plan. The Committee has noted that the Committee of Actuaries had recommended introduction of such a plan...... Therefore, the term insurance policy introduced, though based on calculations of actuarial consideration, was intended to cover not only the elite and employed in government,and reputed commercial establishments but also need to cover wider public, self employed or those working in organised sectors. The term insurance policy under table 58 is beneficial to all sections and restricted to lives in specified area alone.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 popular even in the United States of America as per the material furnished before us which would indicate that during the years 1985 to 1989 among all the policies, the term insurance policy was the most popular one, which covered large number of lives.12. 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 that the capacity to pay the premium would also be a relevant factor.m 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,or reputed commercial firms.The Preamble, the arch of the Constitution, assuresjustice 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 rights 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 whichjustice 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 rights to livelihood, health and strength of workers, men and women and the children of tender age. The material resources of the community are required to be so distributed as best to subserve the common good. Social security has been assured under Article 41 and Article 47 imposes a positive duty on the State to raise the standard or living and to improve public health.15. Article 25 of the Universal Declaration of Human Rights envisages that everyone has the right of standard of living adequate for the health andof 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 and Social Rights equally assures right to everyone to the enjoyment of just and favourable conditions of work which ensures not only adequate remuneration and fair wages but also decent living to the workers for themselves and their families in accordance with the provisions of the Covenant. Covenant on Rights to Development enjoins the State to provide facilities and opportunities to make rights a reality and truism, so as to make these rights meaningful.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 ofjustice 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 dependants, social security to livelihood to the insured or the dependants. 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.19.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.,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.20. It is true life insurance business as defined under section 2(11) of the Insurance Act, 1938, is business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (expect death by accident only) or the happening of any contingency dependent on human life, and any contract which subject to payment of premiums for a term dependent on human life including those enumerated in clauses (a) to (c) thereof. Thereby, the contract of insurance is hedged with bilateral agreement on human life upon payment of premia subject to the covenants contained thereunder. But as stated earlier, is the insurer entitled to impose unconstitutional conditions including that which denied the right of entering into the contract, limiting only to a class of persons under a particular policy ? We make it clear at this juncture that the insurer is free to evolve a policy based on business principles and conditions before floating the policy to the general public offering on 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 ofjustice adumbrated in the Constitution as elucidated hereinbefore.This Court has rejected the contention of an instrumentality or the State that its action is in the private law field and would be immuned from satisfying the tests laid under Article 14. The dichotomy between public law and private law rights and remedies, though may not be obliterated by anyformula, it would depend upon the factual matrix. The adjudication of the dispute arising out of a contract would, therefore, depend upon facts and circumstances in a given case. The distinction between public law remedy and private law field cannot be demarcated with precision. Each case will be examined on its facts and circumstances to find out the nature of the activity, scope and nature of the controversy. The distinction between public law and private law remedy has now become too thin and practicably obliterated.27. 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 that is 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 the public interest.The contention of the appellants is that the offending clause is a valid classification. The salaried group of lives from the government, semigovernment or reputed commercial institutions form 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 differential 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 content to the doctrine of equality,on the doctrine of classification or anxious or sustained attempt to discover some basis for classification may gradually and imperceptily erode the profound potency of the glorious content of equality enshrined in Article 14 of the Constitution. Theon classification would inevitably result in substitution of the doctrine of classification to the doctrine of equality and the Preamble of the Constitution which is an integral part and scheme of the Constitution. Menaka Gandhi ratio extricated it from this moribund and put its elasticity for egalitarian path finder. Lest, the classification would deny equality to the larger segments of the society. The classification based on employment in government,and reputed commercial firms has the insidious and inevitable effect of excluding lives in vast rural and urban areas engaged in unorganized orsectors to have life insurance offending Article 14 of the Constitution andjustice.30. 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 inor reputed commercial firms has been introduced at a later stage, it may not by itself a foolproof 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 latter 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 capable source, policy being volitious it may not be difficult for the people in other private sector, unorganised sector etc. or people insector to take policy under Table 58. Sezhiyan 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 sector. 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 orwould be unjust and irrational and unfair.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.It is seen that the respondents are not seeking any direction in their favour to call upon the appellants to enter into a contractual relations of terms 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,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 the salaried class in 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.