Full Judgment Text
*IN THE HIGH COURT OF DELHI AT NEW DELHI
st
% Date of decision: 21 January, 2015
+ W.P.(C) No.585/2015
SHATRUHAN LAL ….. Petitioner
Through: Mr. Anand Mishra and Mr. Amrendra K.
Singh, Advs.
Versus
UNION OF INDIA & ORS. ….. Respondents
Through: Mr. Amit Mahajan, Adv for R-1.
Mr. Kamal Mehta, Adv for R-3.
Mr. Dipak Nag and Ms. Alka Chojar, Advs for R-2
Mr. Sanjay Jain, ASG with Mr.Amit Mahajan,
CGSC and Ms. Shriya Singh, Adv for UOI.
CORAM:-
HON’BLE THE CHIEF JUSTICE
HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW
RAJIV SAHAI ENDLAW, J.
1. This petition under Article 226 of the Constitution, filed as a Public
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Interest Litigation seeks reliefs of (i) setting aside of the order dated 17 July,
2014 of the respondent No.2 Insurance Regulatory and Development Authority
(IRDA); (ii) direction to the respondent No.2 IRDA to frame suitable
guidelines ‘in the matter’; (iii) issuance of a writ declaring Section 113 of the
Insurance Act, 1938 as ultra vires the Constitution of India; (iv) issuance of a
direction to the respondent No.3 Life Insurance Corporation of India Limited
W.P.(C) No.585/2015 Page 1 of 10
(LIC) to give guaranteed surrender value to all the policy holders irrespective
of duration for which premium is paid; (v) issuance of a direction to the LIC to
maintain account of money collected by LIC from lapsation of the policies
under Section 113(supra) and to make a provision for return of the said monies
to the policy holders or for the use thereof for some other reasonable purpose;
(vi) issuance of a direction to the LIC to make effective guidelines for proper
advertisement in media of the minimum period for which premium is required
to be paid to earn guaranteed surrender value; and, (vii) issuance of a direction
to the LIC to refund the premium paid by the policy holders and forfeited by
LIC for non-payment of premium for a period of three years.
2. Section 113 of the Insurance Act is as under:
113. Acquisition of surrender values by policy - (1) A policy of life
insurance under which the whole of the benefits become payable either on the
occurrence, or at a fixed interval or fixed intervals after the occurrence, of a
contingency which is bound to happen, shall, if all premiums have been paid
for at least three consecutive years in the case of a policy issued by an insurer,
or five years in the case of a policy issued by a provident society defined in
Part III, acquire a guaranteed surrender value, to which shall be added the
surrender value of any subsisting bonus already attached to the policy, and
every such policy issued by insurer shall show the guaranteed surrender value
of the policy at the close of each year after the second year of its currency or
at the close of each period of three years throughout the currency of the
policy:
Provided that the requirements of this sub-section as to the addition of
the surrender value of the bonus attaching to the policy at surrender shall be
deemed to have been complied with where the method of calculation of the
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guaranteed surrender value of the policy makes provision for the surrender
value of the bonus attaching to the policy:
Provided further that the requirements of this sub-section as to the
showing of the guaranteed surrender value on a policy shall be deemed to
have been complied with where the insurer shows on the policy the
guaranteed surrender value of the policy by means of a formula accepted in
this behalf by the Authority as satisfying the said requirements: Provided
further that the provisions of this sub-section as to the showing of the
guaranteed surrender value on a policy shall not take effect until after the
expiry of six months from such date as the Authority may, by notification in
the official Gazette, appoint in this behalf
(2) Notwithstanding any contract to the contrary, a policy which
has acquired a surrender value shall not lapse by reason of the non-payment
of further premiums but shall be kept alive to the extent of the paid-up sum
insured, and the paid-up sum insured shall for the purposes of this sub-section
include in full all subsisting reversionary bonuses that have already attached
to the policy, and shall, where the policy is one on which the maximum
number of annual premiums payable is fixed and the premiums are of uniform
amount, be before the inclusion of such bonuses not less than the amount
bearing to the total sum insured by the policy exclusive of bonuses the same
proportion as the total period for which premiums have already been paid
bears to the maximum period for which premiums were originally payable.
(3) A policy kept alive to the extent of the paid-up sum insured
under sub section (2) shall not be entitled by virtue of that sub-section to
participate in any profits declared distributable after the conversion of the
policy into a paid-up policy.
(4) Sub-section (2) and sub-section (3) shall not apply -
(a) where the paid-up sum insured by a policy being a policy
issued by an insurer, is less than one hundred rupees inclusive
of any attached bonus or takes the form of an annuity of less
than twenty-five rupees, or where the paid-up sum insured by
a policy, being a policy issued by a provident society as
defined in Part III, is less than fifty rupees inclusive of any
attached bonus or take the form of an annuity of less than
twenty-five rupees, or
(b) where the parties after the default has occurred in the
payment of the premium agree in writing to some other
arrangement, or
W.P.(C) No.585/2015 Page 3 of 10
(c) to policies in which the surrender value is automatically
applied under the terms of the contract to maintaining the
policy in force after its lapse through non-payment of
premium.
3. The petitioner claims to have learnt through the medium of the Right to
Information Act, 2005 that the respondent No.3 LIC, till December, 2012, has
forfeited 9,18,89,953 policies by virtue of Section 113(supra).
4. It is the case of the petitioner that the respondent No.3 LIC is however
not maintaining the account of the amount forfeited under the aforesaid
policies, as is evident from the reply to another query under the RTI Act.
5. The petitioner, prior to filing this petition had filed WP(C) No.6613/2013
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which was disposed of vide order dated 24 October, 2013 with a direction to
the respondent IRDA to pass a speaking order on the representation on the
subject matter by the petitioner. The petitioner, upon IRDA not taking such a
decision filed an application being CM.No.10138/2014 in the said writ petition.
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The said application came up before this Court on 13 August, 2014 when it
was informed that IRDA has passed an order on the representation of the
petitioner. Accordingly the application was disposed of with a liberty to the
petitioner to, if aggrieved from the said order of the IRDA, avail of remedies
theragainst.
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6. IRDA vide order dated 17 July, 2014 has disposed of the representation
of the petitioner as under:
“This has reference to your letter dated 10.5.2013 and the order
dated 24.10.2013 of the Hon‟ble High Court of Delhi, directing the
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Authority to dispose off the application dated 10 May, 2013
forwarded by you.
In response to your letter dated 10.5.2013 this is to inform you
that the concept of Insurance is a process of sharing of loss amongst a
pool of identical lives of the community at large. In a nutshell, it may
be portrayed as a concept of „one for all and all for one‟. The business
of life insurance which is essentially long term in nature works on the
principle of large numbers and averages among the group, which runs
for protecting the interests of the parties to the contract. The
premiums and obligations/benefits under an insurance policy are
based on actuarial calculations with proven mathematical
assumptions and are determined accordingly. Further, the premiums
paid by an individual may not be sufficient to meet the expenses and
the possible death claim payable and hence have to be met from the
pool of premiums collected from the entire group.
In this context the provisions of Section 113 of the Insurance
Act, 1938 are to be regarded as the provisions of non-forfeiture (and
not forfeiture) mandating the insurers to refund the underlying
surrender value in the event of receipt of premiums continuously for
three years as stipulated. To this end the provision is beneficial to the
policyholder as it guarantees payment of Surrender value.
Further we would also like to inform the reason why the above
provision exists and the underlying insurance principle. If the
surrenders in the early years of policy are made easy or attractive, an
individual would prefer to surrender the policy in case he faces
economic exigencies. The healthier lives are more likely to surrender
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their policies than the unhealthy ones, distorting the expected
averages of the experience of the pool of policyholders which could
lead to adverse selection which may disturb/destabilize the mortality
and other actuarial assumptions based on which the premiums and
benefits of a policy are arrived, thereby leading to non-viability of
continuation of insurer cover by the Life Insurer. Hence your
suggestion to repeal the rules mentioned in your letter of policy
acquiring guaranteed surrender value after payment of 3 years
premium and Section 113 of the Insurance Act, 1938 cannot be
considered.
Notwithstanding the above – the IRDA, considering customer
interests as well as Actuarial principles (that govern life insurance
business to ensure viability of the same, brought about Non-Linked
Insurance Product Regulations 2013 mandating prospectively that the
policy shall acquire guaranteed surrender value if at least two years
premium is paid in policies with less than 10 years premium paying
term.”
7. Thereafter this petition has been filed.
8. We have as such at the outset inquired from the counsel for the petitioner
as to on what ground the order aforesaid of the IRDA, an expert body in the
field of insurance established under Section 3 of the Insurance Regulatory and
Development Authority Act, 1999 with duty/function inter alia of protection of
interest of policy holders concerning inter alia surrender value of policy and
terms and conditions of contract of insurance, control and regulation of rates,
advantages, regulating investment of funds by insurance companies (see
Section 14(2) (b), (i) and (k) of the IRDA Act), can be interfered with.
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9. The counsel for the petitioner states that he is not pressing the relief of
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setting aside of the said order dated 17 July, 2014.
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10. Though, upon the petitioner not impugning the order dated 17 July,
2014, the entire substratum of the petition disappears but we have still inquired
from the counsel for the petitioner as to on what ground the vires of Section
113(supra) is challenged.
11. The counsel for the petitioner states that the vires are challenged because
the respondent No.3 LIC, without making the policy holders aware of the
condition that upon non-payment of premium for three years by them the policy
shall be forfeited, has been forfeiting the policies.
12. To say the least, the same does not constitute a ground for declaring the
aforesaid provision as ultra vires the Constitution of India. The Supreme Court
in State of Andhra Pradesh Vs. McDowell & Co. (1996) 3 SCC 709 opined
that constitutional validity of an enactment can be challenged only on two
grounds viz lack of legislative competence and violation of any of the
fundament rights guaranteed in Part III of the Constitution or of any other
constitutional provision. It was further held that there is no third ground on the
basis of which a law made by the competent legislature can be invalidated. It
was further held that the Parliament composed of the representatives of the
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people, is supposed to know and be aware of the needs of the people and what
is good and bad for them and the Court cannot sit in judgment over their
wisdom. Similarly, in Dalmia Cement (Bharat) Ltd. Vs. Union of India
(1996) 10 SCC 104 it was held that the Court is not well equipped to adjudge
crudities and inequities emerging from economic legislation; the legislature is
empowered to experiment on economic legislation in its attempt to remove
inequalities in income or status or to provide facilities and opportunities to
improve economic status or provide social and economic justice to the society
and that the Court does not supplant the feel and experiment of the expert by its
own views. Much earlier in Ram Krishna Dalmia Vs. Shri Justice S.R.
Tendolkar AIR 1958 SCC 538 also the same view was echoed and it was inter
alia held that the legislature is free to recognize degrees of harm and may
confine its restrictions to those cases where the need is deemed to be the
clearest.
13. We may notice that there is no basis for the petitioner to also contend
that the respondent No.3 LIC does not make the policy holders aware of the
condition of forfeiture of policy on non-payment of premium for three
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consecutive years. Infact this question was considered in the order dated 24
October, 2013 supra in the earlier writ petition being WP(C) No. 6613/2013
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filed by the petitioner where it was noticed that the proposal form specifically
requires the policy holders to affirm that he has fully understood the terms and
conditions. It cannot also be lost sight of that Section 113 (supra) is law of the
land and of which no ignorance can be pleaded. Supreme Court, in State of
Maharashtra Vs. Mayer Hans George AIR 1965 SC 722 held that in most of
the Indian Statutes, there is provision for the same to come into force on the
date of publication thereof in the Official Gazette. (We may notice that the
same is the position in the Insurance Act). It was further held that it stands to
reason that publication in the Official Gazette is the ordinary method of
bringing legislation to the notice of the persons concerned. The argument
therefore, that the said legislation was not effective because it was not properly
published in the sense of having been brought to the actual notice of person
concerned, was rejected. Similarly, in Pankaj Jain Agencies Vs. UOI (1994) 5
SCC 198 reiterated in Orissa State (Prevention and Control of Pollution)
Board Vs. Orient Paper Mills (2003) 10 SCC 421, the argument, that
notwithstanding publication in Official Gazette, owing to failure to make the
law known, the law did not acquire elements of operativeness and
enforceability, was rejected.
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14. Else, the body of experts being IRDA having opined that the provision
impugned contained in Section 113 is essential to the business of insurance and
the petitioner having failed to show that the said opinion is wrong, we do not
find any ground to interfere.
The petition is accordingly dismissed.
No costs.
RAJIV SAHAI ENDLAW, J.
CHIEF JUSTICE
JANUARY 21, 2015
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