Hon'ble Het Singh Yadav,J.
1. We have heard Shri Imran Syed holding brief of Shri Ravi Kant for the petitioner. Shri R.R. Agrawal appears for the Life Insurance Corporation of India (LIC).
2. The petitioner retired serving as a Judge of this Court. He has filed this writ petition on 2.7.2010 nine years after his retirement for benefit of his son Shri Sanjeev Trivedi, who is suffering from permanent partial disability of cerebral origin quantified by medical specialists at 80%.
3. As a father the petitioner is concerned about the welfare and rehabilitation of his son. He was attracted by a scheme known as 'Jeevan Aadhar' of the Life Insurance Corporation of India for the benefit of handicapped dependents. On 19.1.1997 the petitoner subscribed to a policy no.310340017 in his own name and nominated his handicapped son Shri Sanjeev Trivedi as beneficiary to get the benefits of the policy with table no.114-99-10, of Rs. Two Lacs.
4. The term of the deposit of the policy is the life of the proposer (the petitioner), or 99 years. The assured has to pay only 10 instalments. In case of untimely death of the person assured, the beneficiary gets 20% of the basic sum assured in lumpsum immediately, and the balance of 80% of basic sum to be capitalised and utilised as annuity for the life of the handicapped dependent, with additions and terminal benefits. The policy is earmarked by the proposer and life assured (the petitioner), for the benefit of the handicapped dependent, who is dependent on the assured for his support or maintenance.
5. At the time, when the petitioner subscribed for the policy, his son was 36 years' old. In accordance with Clause 7 of the policy, the person, who had taken the policy is not eligible for surrender. Even after the payment of all the installments, the petitioner was not entitled to surrender the policy.
6. It is submitted by learned counsel for the petitioner that Clauses 7, 8, 9, 10 (a) and 10 (b) of the policy are ultra vires to the provisions of Art.14 and 21 of the Constitution. He has also prayed for writ of mandamus commanding the respondent Corporation to treat the petitioner at par with other policy holders and to grant the same benefits as are available to him, else the petitioner will suffer irreparable loss.
7. It is submitted that the terms of the policy, which deny the person the surrender of the policy (Clause-7), and the period of the policy of the life of the person, who has subscribed to the policy to be 99 years, as well as terms which prohibit assignment of insurance policy (Clause-9) forbids a person to obtain loan on the policy (Clause 8) are violative of Art.14 and 21 of the Constitution of India.
8. It is submitted that the postponement of the ripening of the policy for a period of 99 years or the life of the assured is illegal, arbitrary, absurd and irrational. The petitioner as a concerned father wants the benefits of the policy to be given to his child. The terms of the policy, which prohibit the assignment or any loan to be taken on the policy and the validity of the policy to continue until 99 years or until the life of the petitioner, has denied the petitioner, the welfare of his child. His investment in the policy has been deferred to a future event, which is far away and uncertain, and thus the Court may set aside those terms and allow the petitioner to either surrender the policy or to assign it, or be allowed to take loan on the capitalised value for welfare of the child. The small amount, with rupee having lost its value will be a pittance, and which will not be sufficient to take care of the crippled child.
9. It is submitted that Life Insurance Corporation of India is a statutory corporation established under the Life Insurance Corporation Act, 1938. The Corporation under Section 26 of the Act is obliged to cause an investigation to be made by the Actuarial into the financial conditions of the Corporation. Section 27 provides for the Corporation to submit financial report to the Central Government each year. Section 28 obliges the Corporation to allocate and reserve 95% of the fund to the policy holders subject to approval of the Central Government. The remainder 5% is to be paid to the Central Government or to be utilized in such manner as may be directed by the Central Government. By Amending Act 41 of 1999 the Corporation has to carry out the insurance business in accordance with the provisions of the Insurance Act, 1938, after which it does not have exclusive privilege in life insurance business. The policies issued by the Corporation are guaranteed by the Central Government. The Corporation is a statutory authority within the meaning of Article 12 of the Constitution and thus it cannot act arbitrarily, whimsical and irrational. All its actions must be fair, reasonable and non-arbitrary.
10. It is submitted that the postponement of the policy for 99 years and the conditions that the policy cannot be surrendered, assigned and the prohibition of taking loan on it, are violative of Section 38 of the Insurance Act, 1938, as also Article 14 of Constitution of India. Further the release of only 20% of the amount in the event of sufferance of permanent disability or death due to accident under Clause-10 (a) and 10 (b) of the assured are also illegal, arbitrary and absurd and thus violative of Articles 14 and 21 of the Constitution of India. It is submitted that the terms of the policy in Clauses 7, 8, 9, 10 (a), 10 (b) are unreasonable, unconscionable and are against the public policy. These terms are, therefore, ultra vires of Section 23 of the Contract Act. The Court can severe these terms from the contract to make it rationale and reasonable.
11. In the counter affidavit of Shri K.M. Rai, Administrative Officer (AO). Legal Department, Divisional Office, LIC, Allahabad it is stated that 'Jeevan Aadhar' policy is specially tailored for the purpose of welfare of the handicapped children, after the death of the person, who takes the assurance. A brief description of 'Jeevan Aadhar' plan (Table No.114) is given in para 3. Paragraph Nos.3, 7, 8, 9, 10, 13 and 15 of the counter affidavit are quoted as below:-
"3. That the brief description "Jeevan Aadhar" plan (Table No.114) is as under:-
"Jeevan Aadhar" plan (Table No.114) was introduced especially to make provisions for maintenance of handicapped dependent, after getting approval from Central Board of Direct Taxes, New Delhi. The benefits under Jeevvan Aadhar Plan were designed specifically after consultation with CBDT, New Delhi.
It is a Whole Life Plan and benefits under the plan are available only after the death of the Life Assured. No maturity benefit becomes payable at the end of the premium paying term of the policy.
On death of the Life Assured under a Jeevan Aadhar policy, 20% of the sum assured and accrued guaranteed additions will be paid in lump sum and balance 80% will be converted into an annuity payable for 15 years certain and thereafter for life, to the handicapped dependent. Premiums paid under a Jeevan Aadhar policy were eligible for tax relief under Section 80DD of the Income Tax Act, 1961.
The objective of a Jeevan Aadhar policy is to:
-provide regular income to the dependent in the event of unfortunate death of the policy holder.
-Loan, assignment, surrender are not allowed as per policy conditions, as allowing these will not serve the above purpose.
A true copy of the instructions of L.I.C., Bombay dated 01.01.1996 relating to "Jeevan Aadhar" plan Table No.114 is filed herewith as Annexure No.CA-1.
7. That in reply to the contents of paragraph no.5 of the writ petition, it is stated that the figure 99 signifies that the policy is a Whole Life Policy and no maturity benefit is payable. Only death benefits (20% as lump sum and balance as annuity) are payable on death of the Life Assured.
8. That in reply to the contents of paragraph no.6 of the writ petition, it is stated that nowhere in the policy condition it is mentioned that the life insured or the beneficiary has to live or wait for 99 years to claim the benefit under a "Jeevan Aadhar" plan (Table No.114). As already stated in the earlier paragraph of the counter affidavit, the figures 99 years, represents the facts that it is a 'Whole Life Policy". Allegation to the contrary is denied.
9. That in reply to the contents of paragraph no.7 of the writ petition is not admitted as stated the policy document clearly states the different events and the benefits payable on the happening of such events.
10. That in reply to the contents of paragraph no.8 of the writ petition, it is stated that the surrender of "Jeevan Aadhar" plan (Table No.114) is not allowed as per policy conditions the Jeevan Aadhar plan has been designed in consultation with Central Board of Direct Tax, New Delhi as per Section 80DD of the Income Tax Act, to provide benefit to the handicapped dependent only after the death of the life insured. The policy itself say that "his policy will not be eligible for surrender" therefore the question of investigating the surrender value in some other fruitful avenue is not admitted. Allegation to the contrary is denied.
13. That in reply to the contents of paragraph no.11 of the writ petition, it is stated that a Jeevan Aadhar policy is not allowed as per policy condition. Jeevan Aadhar plan was designed in consultation with CBDT, New Delhi and is specifically meant to provide benefits to the handicapped dependent after the death of the Life Assured.
15. That the contents of paragraph No.17 of the writ petition is denied. The "Jeevan Aadhar" plan (Table No.114) is neither arbitrary in nor whimsical nor irrational. The petitioner fully knowing about the plan as opted for the Jeevan Aadhar plan and have also the deponent has reasons to belief that the petitioner is entitled to claim exemption of premium paid in accordance with Section 80DD of the Income Tax Act. Allegation to the contrary is denied."
12. It is submitted by Shri R.R. Agrawal appearing for the LIC that the petitoner had fully understood the terms and conditions of 'Jeevan Aadhar' plan, which was designed in consultation with the Central Board of Direct Taxes, New Delhi for the purposes of providing assistance to the handicapped dependents. The policy provides for tax benefits, a plan in which after payment of 10 instalments, the person is assured that in case of his death 20% of the sum assured and accrued guarantee addition will be paid in lumpsum to the handicapped dependent and 80% will be converted into an annuity payable for 15 years certain, and thereafter for life to the handicapped dependent. The subscription was not reversible and that policy could not be surrendered at the option of the person assured. The object of the validity of 99 years, is to make policy a whole life policy, with no maturity benefits to be returned to the person assured. The entire object of the policy is to provide for assistance and rehabilitation of the handicapped person after the death of the assured. The terms of the policy namely that policy will not be eligible to be surrendered is one of the essential conditions of the contract to which the petitioner has agreed, for the benefit of his handicapped son. The terms of the policy are fair, and designed to serve the interest of the handicapped dependent.
13. We have considered the respective submissions and find that the conditions of the policy as a contract are not ultra vires of Art.14 and 21 of the Constitution of India.
14. We appreciate the concern of the petitioner as a father of handicapped child. He subscribed to the policy and the plan, which was specially designed by LIC in consultation with the Central Board of Direct Taxes providing for assistance to the handicapped child, after the death of the subscriber, and at the same time allowing him income tax benefits. It cannot be said that the petitioner was not aware of the terms of the special contract and the benefits, which flow from it. Having entered into contract clearly understanding its terms and conditions and the benefits, which the policy offered to his son, the petitioner cannot label the same to be unconscionable, arbitrary and violative of Art.14 and 21 of the Constitution of India.
15. The policy has been designed for a person, who subscribe to the policy for the benefit of handicapped child, and who may in certain events require rehabilitation. The object of keeping the policy alive for 99 years or until the death of the person, who subscribe to the policy, whichever is earlier has a specific objective. The clog on the surrender, transfer or assignment is also linked with the same purpose, namely for providing the benefit to the handicapped child in the event of the death of the subscriber of the policy.
16. We do not find any substance in the contention of learned counsel for the petitoner that the terms of the contract are arbitrary, absurd or unconscionable.
17. The reliance placed upon United India Insurance Company Ltd. v. Manubhai Dharmasinhbhai Hajera & Ors., (2008) 10 SCC 404 is not appropriate. In this case a challenge was made in the Supreme Court to the monopoly created by the LIC. It was held by the Supreme Court in para 38 of the report that when the terms and conditions of contract of insurance are fixed, the protective umbrella over the interest of the policy holders becomes fully open. The insurance 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 IRDA. If the contract of insurance itself provides for renewal of an insurance policy the same may not mean that the assured has a legal right of automatic renewal. The courts are required to strike a balance.
18. In LIC of India & Anr. v. Consumer Education and Research Centre & Ors., AIR 1995 SC 1811 the Supreme Court considered the challenge to the terms of the policy, which had confined such policies to only salaried class from government, semi government or reputed commercial firms as discriminatory offending Art.14. It was found that denial of terms of policy to larger segments as a class violates their constitutional rights.
19. The Life Insurance Business as defined under Section 2 (11) of the Insurance Act, 1938, is a business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (except death by accident only), or the happening of any contingency dependent on whom life, and any contract, which subject to payment of premium for a term dependent upon human life. The contract of insurance is a bilateral agreement on human life upon payment of premia subject to the covenants contained thereunder.
20. The distinction between the private law and public law remedy has been explained in LIC vs. Escorts Limited AIR 1986 SC 1370. The Court may, if the action of the State is related to contractual obligation or obligations arising out of the contract, refuse to ordinarily carry out juridical review unless the action has some public law character attached to it. In Saghir Ahmad v. State of UP AIR 1954 SC 728 the Supreme Court held 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 AIR 1970 SC 1102 and thereafter in Ramana Dayaram Shetty v. International Airport Authority of india AIR 1979 SC 1628 and Kasturi Lal Lakshmi Reddy v. State of J and K AIR 1980 SC 1992 it was held that every activity of the Government has a public element in it and it must, therefore, be informed with reasons guided by public interest. The law cannot afford to remain static. The Court has to evolve new principles and lay down new norms in a highly industrialized economy. Every action of public authority or the person acting in public interest, gives rise to public element and should be guided by public interest. If it is shown that the exercise of power is arbitrary, unjust and unfair, it should be no answer for the State, its instrumentality, public authority or person whose acts have the colour 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. All such actions must be based on some rational and relevant principles. The State and its instrumentality, even if they are acting in the private law field, are not immuned from the tests laid down under Article 14.
21. In the sphere of contractual relations the State, its instrumentality, public authorities have public duty and obligations to act fairly and equitably 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.
22. An unfair and irrational clause in a contract is amenable to judicial review. In Gillespie Brothers and Co. Ltd v. Roy Bowles Transport Ltd (1973) 1 Q.B 400, Lord Denning for the first time construing the indemnity clause in a contract stated that the Court to permit party to enforce an unreasonable clause, when it is so unreasonable, or applied so unreasonably, would be unconscionable, it was stated:
"When it gets to this point, I would say, as I said many years ago. There is the vigilance of the common law which while allowing freedom of contract, watches to see that it is not abused. It will not allow a party to exempt himself from his liability at common law when it would be quite unconscionable for him to do so." In Lloyds Bank Ltd v. Bundy (1974) 3 All ER 757, inequality of the bargaining 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 self interest, 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."
23. The standard form of contracts, which are also called as Contracts of Adhesion' in USA in which the public law authority has an unequal bargaining power, attract the doctrine of unconscionability which means unjust in some sense. After examining the development of law in USA, the Supreme Court in LIC of India vs. Consumer Education and Research Centre and others (supra) held in paragraph-40 as follows:-
"40. 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."
24. The Supreme Court thereafter proceeded to examine the Table 58 of the policy which was confined to only salaried clause from Government/semi Government or reputed commercial firms. It was held that such a class offended Article 14 as it extended the benefit to only a class which could not be distinguished with any rational and thus the offer of policy to only a class of persons was held to be unconstitutional.
25. In the present case a special policy was designed by the Life Insurance Corporation of India labelled as 'Jeevan Adhar', with the approval of the Central Board of Direct Taxes for those concerned parents, who want to leave an annuity to their handicapped children. The terms of the policy which prohibits its surrender, assignment or for a loan to be taken are essential conditions of the policy. All these conditions have been ingrained and built for the benefit of the handicapped children.
26. We do not find any of these conditions are illegal, arbitrary, unconscionable and thus violative of Section 23 of the Contract Act or are in violation of Articles 14 and 21 of Constitution of India. The petitioner as a member of enlightened and privileged class of society, made an informed choice, after considering with all the terms and conditions of the policy, and has paid the requisite instalments. The policy is fully functional and will benefit the handicapped child, after the life of the petitioner. The fall in the value of the rupee and the consequential minimisation of the benefits under the policy is a consequence, which was clearly visible and foreseen. There is nothing in the policy, which may be termed as illegal and arbitrary. The petitioner's concern for his child may allow him to provide him security other than insurance policy which would help the child.
27. The principles of law laid down in the judgments cited as above are not attracted in the present case.
28. The writ petition is dismissed.
Order Date :- 23.5.2012/SP/