E-Meditek Insurance (TPA) Ltd. vs National Insurance Co. Ltd. & Another

Tapabrata Chakraborty, J.

The subject matter of challenge in the present writ petition is a notice for suspension of services dated 27th February, 2018 issued by the General

Manager, National Insurance Company Limited (in short, NIC) to the Chairman, E-Meditek Insurance (TPA) Limited.

Shorn of unnecessary details the facts are that the E-Meditek Insurance (TPA) Limited, being the petitioner herein, is a licensed Third Party

Administrator (in short, TPA) under the Insurance Regulatory and Development Authority (TPA-Health Services) Regulations, 2016 (in short, the said

Regulations). NIC, being the respondent no.1 herein, entered into a health Service Level Agreement (in short, SLA) with the petitioner from time to

time since the year 2002. The tenure of the present SLA, which was entered into on 11th August, 2016, is for a period of two years. By an e-mail

dated 26th October, 2016 NIC reported that SAIL Group Mediclaim policies for the period from 1st January, 2014 to 31st December, 2014 and for the

period from 1st January, 2015 to 31st December, 2015 were serviced by the petitioner and that upon conducting a special audit followed by an audit by

the Vigilance department several irregularities and overpayments were noticed and by the said letter the petitioner was asked to deposit an amount of

Rs.1,45,43,599/-and to explain as to why its services shall not be discontinued. In reply thereto, the petitioner by an e-mail dated 18th November, 2016

stated inter alia that an amount of Rs.47.61 lakhs has already been paid to NIC and assured that it would comply with all its contractual obligations.

Subsequent thereto, a further letter was issued by NIC on 5th April, 2017 stating inter alia that it had suffered loss due to unprofessional handling and

payment of fraudulent claims.

Subsequent thereto, the petitioner issued a letter dated 20th April, 2017 undertaking to indemnify NIC for the demand of Rs.79,30,850/-subject to

production of details and proof and as regards the remaining claim the petitioner requested for mediation or for appointment of an arbitrator. By a

further letter dated 1st May, 2017 the petitioner intimated NIC that it is committed to honour all its obligations under the SLA and that in the event the

dispute cannot be resolved the matter may be referred for mediation under the Clause 27 of SLA 2014-16 and Clause 22 of SLA 2016-18. By a

subsequent letter dated 2nd August, 2017 the petitioner intimated NIC that a few of its employees have colluded to perform some illegal acts which

include manipulating claims and that some of the said employees have been identified and that a police complaint had been lodged against eight

employees. NIC thereafter issued a notice of suspension for services on 27th February, 2018. Soon thereafter the petitioner had a discussion with the

management of NIC and submitted a further representation on 6th March, 2018. In the midst thereof, the IRDAI issued an order of suspension of

certificate of registration on 20th March, 2018. The said order was challenged by the petitioner and by an order dated 23rd March, 2018 the learned

Security Appellate Tribunal stayed the impugned order.

Mr. Kar, learned senior counsel appearing for the petitioner submits that the amount as claimed by the letter dated 26th October, 2016 is based

upon a random sampling of claims and the impugned notice dated 27th February, 2018 was issued without taking into consideration the reply submitted

by the petitioner on 18th November, 2016 wherein it was categorically indicated that the petitioner had already paid an amount of Rs. 47,61,892/-. The

factum of payment of such amount also stands admitted in the subsequent letter issued by NIC on 5th April, 2017.

He contends that the petitioner has already indemnified NIC to the extent of approximately Rs.80 lakhs, which amount has been accepted by NIC

without any demur and that as regards the other claims of NIC, the petitioner has offered to secure the same by providing a bank guarantee of Rs.50

lakhs or such amount as may be determined by NIC.

He argues that the issues which form the subject matter of the impugned notice dated 27th February, 2018 had been the subject matter of

discussion between the parties since the year 2014 and the SLA which was operative at the said juncture had already expired. Thus on the basis of

the said dispute, NIC had no authority to issue the impugned notice. Such dispute could have been decided on the basis of the arbitration clause in the

SLA of the years 2014 and 2015 as it is well settled that the arbitration clause which forms the part of the contract has to be treated as an agreement

independent of the other terms of the contract and that it survives even after the agreement expires. In support of such contention reliance has been

placed upon the judgments delivered in the case of M/s. Reva Electric Car Co. P. Ltd. â€"vs- M/s. Green Mobil, reported in 2012(2) SCC 93 (para

51) and in the case of Enercon (India) Ltd. & Others â€"vs- Enercon GMBH & Another, reported in 2014(5) SCC 1 (paras 83, 84).

He further submits that in the present SLA between NIC and the petitioner there is no provision for suspension. The absence of such power as an

express term in the contract would mean that NIC had no authority to issue the impugned notice and as such the impugned notice suffers from a

jurisdictional error. In support of such contention reliance has been placed upon a judgment delivered in the case of Management of Hotel Imperial,

New Delhi & Ors vs. Hotel Workers’ Union, reported in AIR 1959 SC 1342.

He further contends that the impugned order of suspension involves affectation of fundamental right of the petitioner guaranteed under Article 19(1)

(g) of the Constitution of India and Article 14 thereof. The issues involved in the present writ petition are also in the domain of public law element and

therefore existence of arbitration clause in the contract cannot be a fetter to maintainability of the writ petition. In support of such contention he has

placed reliance upon the judgment delivered in the case of Popcorn Entertainment and Another â€"vs- City Industrial Development Corpn. and

Another, reported in (2007) 9 SCC 593.

According to Mr. Kar the impugned notice seeks to rely upon the criminal cases filed by the petitioner against certain ex-employees as an

“admission†on charges of irregularities. The entire approach of NIC is erroneous inasmuch as if the contention of NIC is to be accepted, no

insurance company/TPA would ever be in a position to initiate enquiry or adopt appropriate proceedings in law for the purpose of discovering any

fraud in relation to insurance claims. NIC had misconstrued the contents of the letters dated 20th April, 2017 and 1st May, 2017 to be admission on the

part of the petitioner to avail the dispute resolution clause under the present agreement.

Per contra Mr. Chatterjee, learned senior counsel, assisted by Mr. Bhattacharya, learned senior counsel, appearing on behalf of NIC submits that

the terms and conditions of the SLA dated 11th August, 2016 need to be considered together and not in isolation. A cumulative reading of all the

clauses of the agreement would reveal that the notice dated 27th February 2018, was drawn in meticulous regard to the provisions of the SLA. A

particular clause cannot be taken up and highlighted. It has been categorically stated in Clause 12.2.6 of the said agreement that NIC has the authority

to cancel the agreement by sending the TPA a thirty days’ notice. The wider power of termination of the agreement includes by necessary

implication the lesser power of temporary termination by way of suspension. In support of such contention reliance has been placed upon the judgment

delivered in the case of Hindusthan Petroleum Corporation Ltd. & Ors. â€"vs- Shyam Sundar Ganeriwala, reported in (1988) 2 CHN 233.

He contends that no public law element is involved in the said agreement. The same is a private contract of the insurance company with the

intermediary for private service. By the said agreement the petitioner was engaged for providing health services as mentioned under the said

Regulations on agreed fees. The scope of judicial review in respect of disputes falling within the domain of contractual obligations is very limited. In

support of such contention reliance has been placed upon the judgment delivered in the case of K.K. Saksena â€"vs- International Commission on

Irrigation and Drainage and Others, reported in (2015) 4 SCC 670.

He further submits that the said agreement itself provides a dispute resolution clause being Clause 22. The dispute which has occasioned is as to

whether NIC could have issued the impugned notice of suspension. For resolution of such dispute the petitioner ought to have availed remedy as

provided under Clause 22 of the SLA instead of preferring the present writ petition.

He further submits that the SLA executed on 11th August, 2016 is in continuation of the previous agreement with the petitioner and such fact

stands admitted by the petitioner in paragraph 4 of the writ petition. In view thereof, the petitioner cannot insist for resolution of the dispute through

arbitration in terms of the previous SLA as the claim of NIC pertains to a period prior to the execution of the present agreement on 11th August, 2016.

Drawing the attention of this Court to a letter dated 30th June, 2016 at page 319 in the affidavit-in-opposition, Mr. Chatterjee submits that the

petitioner failed to pay all the arrears to NIC and upon special audit report it was found that 99 reimbursement claims amounting to Rs.1,16,78,215/-

were fictitious as the names of the persons to whom the reimbursement payments were made are different from the names of insured/

patients/nominees. Such fact partly stands admitted by the petitioner, as would be explicit from the petitioner’s letter dated 20th April, 2017

wherein the petitioner had undertaken to immediately indemnify NIC as regards the demand of Rs.79,30,850/- subject of production of relevant

supporting details and proof. In the said letter it was also stated that as regards the balance claim of an amount of Rs.18,11,545/- the petitioner had

already furnished the details and had requested the Delhi Regional Office-1 for mediation of an independent agency or appointment of an arbitrator.

He further submits that there is no infirmity in the notice impugned inasmuch as the same has been issued with the sole objective of promoting the

legitimate interests of the policy holders as NIC is the repository and custodian of the funds of the policy holders. The fund of all the policy holders is

at stake and the NIC has lost its faith and confidence upon the petitioner.

He further argues that in view of the personal nature of the service and relationship between the parties, a contract of health service as the one

entered into between the petitioner and NIC, is incapable of specific performance and to enforce the performance thereof would be inequitable and

NIC cannot be compelled to enter into a relationship involving mutual faith, confidence and continued trust against its will. In support of such

contention reliance has been placed upon the judgment delivered in the case of Percept D’Mark (India) (P) Ltd. â€"vs- Zaheer Khan and

Another, reported in (2006) 4 SCC 227.

In reply, Mr. Kar submits that the letter dated 30th June, 2016 is an internal communication and the same has not been issued upon hearing the

petitioner and as such no reliance can be placed upon the same. The impugned notice has been issued merely on the basis of a suspicion and mere

suspicion cannot be a deterrent towards continuance of relationship with the petitioner. The judgment delivered in the case of Hindustan Petroleum

Corporation Ltd. (supra) has no manner of application in the instant case inasmuch as in the same the Court has not decided the issue that a clause

towards termination includes suspension.

Upon conducting a special audit followed by an audit by the vigilance department, it was ascertained that ninety nine reimbursement claims

appeared to be fictitious as the names of persons to whom reimbursement payments were made are different from the names of insured/ patients/

nominees. Such fraudulent practice as surfaced was the basis towards issuance of the notice dated 26th October, 2016 by which the petitioner was

called upon to deposit an amount of Rs.1,45,43,599/- and to explain why NIC shall not discontinue utilizing the services of the petitioner. By a letter

dated 2nd August, 2017 issued to NIC the petitioner has stated that a few of its employees have colluded to perform some illegal acts which include

manipulating claims and that some of the said employees have been identified and that a police complaint had been lodged against eight employees. In

the backdrop of such facts, the argument of Mr. Kar that such incident cannot be a deterrent towards continuance of relationship is not acceptable to

this Court. It would be iniquitous to persuade NIC to continue its relationship with the petitioner when it had lost its faith and trust. As such the

directions as prayed for in the instant petition would tantamount to grant of a premium to a recalcitrant party to the contract.

In paragraph 4 of the writ petition, it has been stated that “the Service Level Agreement was for a period of two years from 8th July, 2014 to

7th August, 2016. Subsequently the petitioner and Respondent entered into a Health Services Agreement dated 11th August, 2016 to continue the

effect of the aforesaid agreement dated 8th July, 2014 in compliance with the IRDAI regulations by which the Petitioner agreed to provide services

listed thereinâ€​. From such averments it is explicit that the SLA of 2016-18 is in continuation of the SLA of 2014-16. By a letter dated 20th April, 2017

the petitioner undertook to indemnify NIC for the demand of Rs.79,30,850/-subject to production of details and proof and as regards the remaining

claim the petitioner requested for mediation or for appointment of an arbitrator. Subsequent thereto, by a further letter dated 1st May, 2017 the

petitioner has intimated NIC that it is committed to honour all its obligations under the SLA and that in the event the dispute cannot be resolved the

matter may be referred for mediation under the Clause 27 of SLA 2014-16 and Clause 22 of SLA 2016-18. In the backdrop of the said facts, the

petitioner’s contention that the dispute pertaining to the policies of the years 2014 and 2015 cannot be brought within the ambit of Clause 22 of the

SLA of the of 2016-18 and that the impugned notice suffers from a jurisdictional error is not acceptable to this Court and the judgment delivered in the

case of Popcorn Entertainment and Another (supra) has no manner of application in the present case.

No mala fide or arbitrariness can be attributed to the action of the respondents. The dispute as agitated in the present writ petition pertains to a

contract and involves serious disputed questions of fact, which are complex in nature. The said dispute cannot be decided in a proceeding under

Article 226 of the Constitution of India.

A perusal of the impugned notice would reveal that the same was preceded by various correspondences and discussions in between NIC with the

petitioner. From the audit conducted prior to issuance of the said notice, numerous irregularities and fraud in claims management by the petitioner

were noticed and upon being apprised of such facts, the petitioner itself on the basis of a finding that some of its employees had colluded to perform

illegal acts, lodged police complaints against the said employees. It is in the said backdrop of facts, the impugned notice of suspension was issued and

there is no infirmity in the decision making process.

A cumulative reading of all the clauses of the SLA would reveal that the said contract confers specific authority upon NIC to terminate the

contract coupled with the authority to maintain strict surveillance upon the TPA and to ensure that the policy holders remain protected. Even after

arriving at a finding in an unambiguous manner that there was an element of fraud in claims management by the petitioner, it would be an absurdity to

suggest that NIC, having the authority to cancel the contract itself, cannot take steps to close the breach of the terms and conditions of the agreement

even after ascertaining that the interest of the policy holders is at stake. In such circumstances, it is not acceptable to this Court that NIC had no

authority to issue the impugned notice. The judgment delivered in the case of Management of Hotel Imperial, New Delhi & Ors (supra) pertaining to

the ordinary law of master and servant is distinguishable on facts.

For the above reasons, this Court is unable to grant the reliefs as prayed for in the writ petition.

Accordingly, the writ petition is dismissed. Â There shall, however, be no order as to costs. Urgent Photostat certified copy of this judgment, if

applied for, be given to the parties, as expeditiously as possible, upon compliance with the necessary formalities in this regard.