A bolt from the blue judgment from the Supreme Court on the role of the State under liberalization

It has been the general perception that the Supreme Court has been mostly supportive of the State’s liberalization agenda since the 1990s. This judgment by Justices Sinha and Sirpurkar in the case of United India Insurance Company Limited Vs.Manubhai Dharmasinhbhai Gajera & Ors delivered on May 16 clearly suggests that even after privatization, the judiciary’s longing for Welfare State still survives. The Bench has held that ‘level playing field’ cannot apply to the institutions of the State, notwithstanding the climate of competition in which they find themselves under the State’s pursuit of New Economic Policy.

Though the case involved just an interpretation of the contract between the insured and the insurance company, the Bench’s general observations have contributed to the public law jurisprudence significantly. The Bench held that the insurance company, a `State’ under Article 12, cannot refuse to renew a policy because of a pre-existing disease, and has directed the IRDA to issue suitable guidelines in this regard.

The relevant paragraphs in the Judgment are being reproduced here:

Paragraph 23: There is no escape from the fact that the appellant is a `State’ within the meaning of Article 12 of the Constitution. It has been created under the 1972 Act. The said Act, as the preamble shows, was enacted for achieving certain purposes, economic benefit of the people and/or group of people, being one of it. At the point of time when the 1972 Act was enacted the insurance companies enjoyed a monopoly status. But would it mean that only because it ceases to enjoy the same by itself is sufficient to hold that it is not required to follow the constitutional or statutory norms?

Paragraph 26:

We would assume that it is one thing to say that the State is to make all endeavours to improve the public health but the same by itself would not mean that a contract of insurance governed by statute must receive construction in terms of the said provision or otherwise, the endeavour of the State should have been to direct compulsory insurance
for all its citizens. Improvement of public health has been held to mean an obligation on the part of the State to put forth its policy to ecological balance and hygienic nvironment, the later being an indirect facet of the right to healthy life.

Paragraph 30:

“Two things are apparent. One, the Central Government has come out with a new economic policy. The monopoly status has been taken away from the General Insurance Corporation of India and its subsidiaries. The insurance companies are required to compete with others in the field, but the same may not necessarily mean that despite the statutory interdicts the public sectors insurance companies must have a level playing field with the private insurance companies.

Paragraph 31:

“ We have, despite the new economic policy of the Central, no option but to proceed on the assumption that the public sector insurance companies being a State have a different role to play. It is not to say that as a matter of policy statutory or otherwise the insurance companies are bound to regulate all contracts of insurance having the statement of Directive Principles in mind but there cannot be any doubt whatsoever that fairness or reasonableness on the part of the insurance companies
must appear in all of its dealings.

Paragraph 51:

A private player, as the law stands now, may not be bound to comply with the constitutional requirements of the equality clause, the appellants are.

Paragraphs 53 & 54:

We may also notice that the Universal Declaration of Human Rights states that :

“Everyone has right to a standard of living adequate for the health and well-being of himself and his family, including food, clothing, housing and medical care, and necessary social services, and the right to security in the vent of unemployment, sickness, disability, widowhood, old age, or other lack of livelihood in circumstances beyond his control.”

The declaration also demands that the member nations secure the
recognition and observance of the said rights. The authority would do well in issuing appropriate direction keeping in view the aforementioned human rights and particularly in view of the fact that the Government of India does not provide for any social security by way of compulsory insurance. Unlike the provisions of the Motor Vehicles Act, 1988 such compulsory insurance does not find a place in any statute book.

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  • It appears that the court was persuaded by the reasoning (para 64) that the company’s actions were in violation of IRDA regulations governing policy termination (para 16) as well as its own policy (para 21). I understand that but fail to see what the universal human rights declaration has to do with any of this. It is stupid and naive for a court to think that it can advance the country towards the goal of universal health insurance simply by forcing state-owned insurance companies in a competitive environment to underwrite policies for the sickest people. By causing premiums for other members to rise, it is more likely to be put out of business. There are various ways to go about providing universal coverage but this half-assed idea is certainly not one of them. The court only draws attention to its own shortcomings by suggesting that such considerations influence its decisions.

  • In Roche vs CIPLA Delhi high court referred to right to health as fundamental right and access to medicines was
    also discussed by the Court.I wonder whether Courts can strecth the rights discourse in any context like these.Nationalised insurance companies are in the business of insurance and cannot be expected to do acts that harm
    their commercial interests.
    ” There is no escape from the fact that the appellant is a `State’ within the meaning of Article 12 of the Constitution. It has been created under the 1972 Act. The said Act, as the preamble shows, was enacted for achieving certain purposes, economic benefit of the people and/or group of people, being one of it.”
    They can be considered as state
    for some purposes.But if considering as state creates
    conflict with their commercial
    interests can the court direct
    it to act against their commercial
    interests. Finally if the rules laid down by IRDA contradict court’s orders which is binding. Can the Courts step into the shoes of the regulator. The regulator cannot discriminate in favor of public sector companies. Otherwise level playing field is not possible.

  • Ravi,
    In para 52, the court laid out the distinction between public and private players: “Whereas a private player in the field is only bound by the statutory regulations operating in the field, the public sector insurance companies are also bound by the directions issued by the General Insurance Corporation as also the Central Government. They cannot be ignored.”

    I suppose the IRDA regulation alone was not determinative. The company’s own policy letter (para 21) indicated how to deal with ‘different situations which may arise during the renewal of insurance’ (“In case of renewal without a break in the period the policy will be renewed including the disease contracted during the expiring policy period.”). The court’s reading of the two in pari materia probably made the difference.