UNITED INDIA INSURANCE COMPANY LTD v. MANUBHAI DHARMASINHABHAI GAJERA & Ors.

Judgment

9 S.C.R. 778 A UNITED INDIA INSURANCE COMPANY LTD. V. MANUBHAI DHARMASINHABHAI GAJERA & ORS. (Civil Appeal Nos.4113-4115 of 2008) B MAY 16, 2008 [S.B. SINHA AND V.S. SIRPURKAR, JJ] Insurance: c Renewal of - Public sector insurance company - Medic/aim policy - If automatic, on payment of premium - Held: Renewal of medic/air'I policy, subject to just exceptions, should ordinarily be made - But that does not mean that renewal is automatic - On facts, the insured, though not entitled to auto- matic renewal, was entitled to be treated fairly- Only because the insured had started suffering from a disease, the same did not mean that the said disease could be excluded - If the insured had made some claim in each year, the insurance company could not refuse to renew insurance policy only for that reason - Action of the insurance company was highly ar- bitrary - Certain directions given to Insurance Regulatory and Insurance Act, 1938 - Gen- Development Authority (/RDA) - era/ Insurance Business (Nationalisation) Act, 1972 - ss.10A, 19(2), 19(3) and 24A - Insurance Regulatory and Develop- ment Authority (Protection of Policyholders' Interest) Regula- Insurance tions, 2002 - Regns. 2(1)(e}, 6, 7(1)(n}, 11(4) - Regulatory and Development Authority Act, 1999 - Constitu- tion of India, 1950 - Art. 12. Constitution of India, 1950 -Art. 226 - Judicial Review - Scope of - Held: While determining a tis having public law domain, Courts entitled to take a broader view - Even cases involving contracts may be determined by High Court in exer- cise of its jurisdiction under Art. 226 - On facts, Appellant in- surance company had declined to renew the medic/aim policy - Basic facts were admitted - The High Court was concerned 778 D E F G H ~- A i .. A ~ - , ... .A. .. .. ;.. ""11r UNITED INDIA INSURANCE CO. LTD. v. MANUBHAI 779 DHARMASINHABHAI GAJERA & ORS. with the interpretation of statute and interpretation of the con- A tract of insurance - Judicial Review of the impugned action on part of Appellant was, therefore, permissible. The business activities of insurance compani.es are governed by the Insurance Act, 1938. In terms of the said Act, the Insurance Regulatory and Development Author- ity (the Authority) was constituted by the Central Govern- ment. The Authority made the Insurance Regulatory and Development Authority (Protection of Policyholders' In- terest) Regulations, 2002. Appellants are subsidiary insurance companies of General Insurance Corporation of India, carrying on in- surance business in terms of the General Insurance Busi- ness (Nationalisation) Act, 1972. By the Insurance Regu- latory and Development Authority Act, 1999, s.24A was in- serted in the 1972 Act directing cessation of the exclu- sive privilege of the Corporation and the acquiring com- panies in relation thereto. B c D Respondents had taken medi-claim policies. Appel- lant insurance companies declined to renew the same. E Respondents filed writ petitions before the High Court which were allowed. In appeals to this Court, the Appellants contended that 1) the High Court erred in holding that the contract of insurance is no longer ~n the realm of contract; 2) that the F insurance companies must function having regard to 'commercial expedience' consideration in view of s.24A of the 1972 Act and 3) that even assuming that Appellant is a 'State' within meaning of Art. 12 of the Constitution, the same by itself would not mean that it cannot enter into G a contract with the policy holder on its own terms, par- ticularly when such terms have been approved by the Au- thority. Respondents, on the other hand, contended that the H 780 SUPREME COURT REPORTS [2008] 9 S.C.R. 0 A insurance companies having regard to their obligations not only in terms of the constitutional provisions but also the provisions of the 1938 Act, the 1972 Act and the 1999 Act and the Regulations framed thereunder and the guide lines issued, are bound to renew mediclaim policies from s time to time on the same terms and conditions; that Ap pellants, are bound to act fairly and reasonably in the matter of renewal of its policies and wrongful refusal on their part must be remedied; that assuming that the in surance companies must address their business concern c vis-a-vis the competition which they face from the other companies, the same does not mean that, despite being the 'State' within the meaning of Art. 12 of the Constitu tion, they would refuse to carry out their constitutional and statutory obligations, particularly in view of the fact that the insurance business was acquired by the 1972 Act to subserve the public purpose; that renewal of insurance policy, for all intent and purport, should be held to be au tomatic, subject of course to tender of the amount of pre mium of insurance in time inasmuch as in terms of the guidelines issued by the Authority, the policy is to be a E continuous one; that the right to cancel the policy and refusal to renew the same must be held to be confined only to the exclusionary clauses contained in the policy; that the functions of Appellants being regulated by statu tory guidelines and circulars issued from time to time, any F departure therefrom must be held to be wholly unfair and mala fide; that the insurance companies being 'State' are not only bound to comply with the constitutional scheme contained in the preamble of the Constitution but also the provisions of s.1 OA of the 1972 Act and other provisions G of the Act and that in any event the policies must be con strued in favour of the insured in view of the maxim - con tra proferentum and uberrimae fidei. Whether renewal of a mediclaim policy on payment of the amount of premium would be automatic, is thus H UNITED INDIA INSURANCE CO. LTD. v. MANUBHAI 781 DHARMASINHABHAI GAJERA & ORS. -.4. the question involved in the present appeals. A Dismissing the appeals, the Court HELD:1.1. Appellant is a 'State' within the meaning of Art.12 of the Constitution. It has been created under the General Insurance Business (Nationalisation) Act, B 1972. If it is a 'State' its action must be fair and reason- able. Appellants being subsidiaries to General Insurance Corporation cannot ignore the statutory provisions. They are bound by the directions issued by the Central Gov- ernment. [Paras 23, 24, 67] [798-C,E, 820-8,C] c

1.2. The functions of the insurance companies are governed by statute. A contract of insurance, therefore, must subserve the statutory provisions. It must be con- strued having regard to the larger public policy and pub- lie interest guiding nationalization of the insurance com- D panies. [Para 28] [799-F]

1.3. When the terms and conditions of contract of in- s_urance are fixed, the protective umbrella over the inter- est of the policy holders becomes fully open. The insur- ance companies cannot either in their prospectus or in the terms of policy lay down any condition which would be derogatory to the terms and conditions approved by the Regulatory Authority. If the contract of insurance it- self provides for renewal of an insurance policy the same may not mean that the assured has a legal right of auto- matic renewal, but the Courts are required to strike a bal- ance. [Para 34] [801-G, 802-A]

1.4. A distinction in the approach of the Court in this behalf must also be borne in mind, namely that a Court may exercise its power of judicial review at the threshold of formation of a· contract and the cases where the terms and conditions of contract are to be enforced. Whereas in the former case, the Courts' jurisdiction is wider, in the latter, it is not. However, it does not mean that the Court E F G H A .... -Y ... ~ .'" ~ \ 782 SUPREME COURT REPORTS [2008] 9 S.C.R A shall not interfere even in a case where the term of the contract is against the public policy or where in enforc- ing the same the State acts arbitrarily, unfairly or unrea- sonably or makes discrimination amongst the persons similarly situated. [Para 35] [802-B,C,D] B

1.5. Where a renewal is based on mutual consent, there may be no automatic renewal but, a mediclaim policy where a senior citizen is involved would stand somewhat on a different footing. It will depend upon the contract entered into between the parties and the statutes operat- c ing in the field as also constitutional scheme. [Para 46]

1.5. There exists a distinction between a private player in the field and a public sector insurance company. A pri- vate player, as the law stands now, may not be bound to comply with the constitutional requirements of the equal- ity clause, but the appellants are. Whereas a private player in the field is only bound by the statutory regulations aper- ating in the field, the public sector insurance companies are also bound by the directions issued by the General In- surance Corporation as also the Central Government. They cannot be ignored. [Paras 51, 52] [814-F-H, 815-A] D E

1.6. It is essential that while on the one hand, the in- surance companies are not put to undue burden keeping in view the changes in the statute as also the policy deci- F sions of the Central Government, they cannot also be permitted to act wholly arbitrarily and unreasonably. They cannot be permitted to create a social condition which would negate all human rights. [Para 55] [816-B,C]