Supreme Court: In an appeal against the decision of the National Consumer Disputes Redressal Commission (‘NCDRC’), wherein the commission having found a deficiency in service; placed reliance upon the exclusion clause in setting aside the decision of the State Commission while granting a sum of Rs. 7.5 lakhs to the appellant, division bench of M.M. Sundresh* and Surya Kant, JJ. held that non-compliance of Clauses (3) and (4) of the Insurance Regulatory and Development Authority (Protection of Policy Holder's Interests, Regulation 2002) Act (‘IRDA Regulation, 2002’) preceded by unilateral inclusion, and thereafter followed by the execution of the contract, receiving benefits, and repudiation after knowing that it was entered into for the basement, would certainly be an act of unfair trade practice. Thus, the Court set aside the impugned order passed by NCDRC, except to the extent of declining a sum of Rs. 2.5 lakhs towards harassment and mental agony
In the case at hand, the appellant secured a Standard Fire & Special Perils policy from the respondent for cover a shop situated in the basement of the building. However, the exclusion clause of the contract specifies that it does not cover the basement. The shop met with a fire accident for which the appellant made a claim. While arriving at the sum payable, the surveyor did notice the fact that the earlier inspections were made and that the fact that the shop was in a basement was to the knowledge of the insurer. Thus, the claim made was repudiated by respondent taking umbrage under the exclusion clause.
The issue in this case was whether an exclusion clause destroying the very contract entered with knowledge, can be permitted to be used by a party who introduced it, becomes a beneficiary and then to avoid its liability?
The Court said that insurance contracts are adhesion contracts (Standard-Form Contracts), that are prepared by the insurer having a standard format, upon which the consumer has very little option or choice of negotiation. The insurer, being the dominant party, dictates its own terms, leaving it upon the consumer, either to take it or leave it. Thus, such contracts are obviously one-sided, grossly in favour of the insurer due to the weak bargaining power of the consumer. Further, an exclusion clause can never be understood to mean conflicting with the main purpose for which the contract was entered.
The Court said that there is an onerous responsibility on the part of the insurer while dealing with an exclusion clause, as the insurer is statutorily mandated as per Clause 3(ii) of the IRDA Regulation, 2002 to the effect that the insurer and his agent are duty bound to provide all material information in respect of a policy to the insured to enable him to decide on the best cover. Further, Clause 3(iv) mandates that if proposal form is not filled by the insured, a certificate must be incorporated at the end of the said form that all the contents of the form and documents have been fully explained to the insured and made him to understand. Similarly, Clause 4 enjoins a duty upon the insurer to furnish a copy of the proposal form within thirty days of the acceptance, free of charge. Any non-compliance would lead to the conclusion that the offending clause, be it an exclusion clause, cannot be pressed into service by the insurer against the insured as he may not be in knowhow of the same.
The Court took note of Sections 2(i), 10, 17, 18 and 19 of the Contract Act, 1872, and said that when the Court is satisfied that a fraud, or misrepresentation resulted in the execution of the contract through the suppression of the existence of a mutually destructive clause, facilitating a window for the insurer to escape from the liability while drawing benefit from the consumer, the resultant relief will have to be granted.
The Court also took note of the Consumer Protection Act (‘CP Act’), 1986 and said that the object of this Act is to make the Commission as consumer friendly as possible. Further, this Act takes in its sweep all forms of unfair trade practice and gives adequate ammunition to the Court to declare any form of unfair trade practice illegal while granting the appropriate relief. It also referred to the Consumer Protection Act, 2019 and said that, under this Act there exists ample power to declare any terms of the contract as unfair by the State Commission and the National Commission.
The Court said that both NCDRC and the State Commission have held concurrently that respondent was conscious of the fact that the contract was entered into for insuring a shop situated in the basement.
The Court observed that Section 21(A) CP Act, 1986, is not related to Section 96 of the Code of Civil Procedure, 1908. Thus, it held that, even if the impugned order has not considered all the relevant materials which were duly taken note of by the State Commission, once it is proved that there is a deficiency in service and that respondent knowingly entered a contract, notwithstanding the exclusion clause, the consequence would flow out of it.
Further, even as per the common law principle of acquiescence and estoppel, respondent cannot be allowed to take advantage of its own wrong, if any, and it is a conscious waiver of the exclusion clause by respondent.
The Court held that the terms of the contract are unfair, particularly the exclusion clause, and that the respondent has indulged in unfair trade practice. Thus, the decision of the NCDRC was set aside, as the appellant cannot be non-suited only on the ground of mere deficiency in service, without taking note of the fact that it is the duty of the forum to grant the consequential relief by exercising the power under Section 14(d) and 14(f) of the Consumer Protection Act, 1986 that makes it consequential in granting adequate compensation, once it finds deficiency, the existence of unfair terms in the contract and unfair trade practice on the part of the other party.
The Court further cautioned the Insurance companies that, non-compliance of Clause (3) and (4) of the IRDA Regulation, 2002, would take away their right to plead repudiation of the contract by placing reliance upon any of the terms and conditions included thereunder.
[Texco Marketing (P) Ltd. v. TATA AIG General Insurance Co. Ltd., 2022 SCC OnLine SC 1546, decided on 09-11-2022]
*Judgment by: Justice M.M. Sundresh
*Apoorva Goel, Editorial Assistant has reported this brief.