Erode District Bus Owners Association and Others vs Insurance Regulatory and Development Authority and Others

K. Chandru, J.—All these matters came to be posted before this Court vide an order dated 7.6.2011 by the Hon''ble the Chief Justice.

While W.P. No. 13144 of 2011 was heard on 09.06.2011, all the other writ petitions were heard on 08.06.2011.

In all these writ petitions, the subject matter of the challenge is to the order, dated 15.4.2011 issued by the first Respondent, i.e., Insurance

Regulatory and Development Authority (for short IRDA) constituted under the Insurance Regulatory and Development Authority Act, 1999. By

the impugned order, the IRDA had fixed the Motor Insurance Premium Rates for third party liability only cover. The Petitioners in all these writ

petitions were either associations of bus operators, lorry operators, trade union of Auto rickshaw drivers and associations of matriculation schools,

self finance colleges and deemed universities.

The short question that arise for consideration in this batch of cases was whether the fixation of premium rates for third party liability by the

IRDA was without jurisdiction and whether it is arbitrary and violative of Article 14 of the Constitution as well as ultravires of the provisions of the

Insurance Act, 1938?

Before going into the contentions, it is necessary to refer to the impugned order in extenso for better appreciation of the facts involved in all

these cases. The order reads as follows:

The Authority refers to the Exposure Draft on Review of Motor Insurance Premium rates for Third Party Liability Cover dated 4th January 2011,

which was published in its website. Subsequently on receiving responses on the exposure draft, the Authority held series of discussions with the

Transporters'' Associations and Insurers.

By virtue of the power vested in the Authority u/s 14(2)(i) of the IRDA Act, 1999, it is hereby notified that with effect from 25.04.2011, the rates

of premium applicable to Motor Third Party Liability Insurance business shall be as set out in Annexure-I to this notification. The Authority has

noted that Motor Third Party premiums were revised in the past at 4/5 year intervals. Such long intervals between rate revisions cast an avoidable

strain on policyholders as well as on the insurance companies. Premiums need to be reviewed regularly depending upon the average claims which

have been awarded by the various courts, frequency of claims for each class of vehicle and inflation amongst other factors. During the consultation

process, certain stakeholders had also suggested that an annual review would ease the burden of adjusting to changes in premia consequent to

changes in these financial parameters.

Having regard to the above, after extensive statistical analysis of data for all classes of vehicles, the Authority has arrived at a formula for the

revision of rates based on settled parameters as set out in Annexure-II. The parameters built into the formula are (i)average claims cost for each

class of vehicle (ii)frequency of claims for each class of vehicle and (iii)Cost Inflation Index for the year of review.

Based upon the formula as set out in the Annexure II, the premiums would be reviewed and adjusted annually.

Insurers are advised to be mindful of the concerned expressed by vehicle owners about both the rates and availability of insurance. Considering the

mandatory nature of Motor Third Party Insurance, insurers are advised to ensure that Motor Third Party Insurance is made available at their

underwriting offices and that requests for insurance are processed expeditiously and policies are issued promptly. The Authority will treat any

complaint of non-availability of insurance or use of methods to deny/delay the client seeking insurance cover, seriously.

Insurers are not permitted to cancel the current insurance policies and issue fresh policies to effect new premium rates.

This Notification as well as the enclosed schedule of premium rates shall be prominently displayed on the Notice Board of every underwriting

office of the Insurers where it can be viewed by the public.

This Notification is issued in supersession of the Authority''s earlier Notification Ref:043/IRDA/De-Tariff/Jan-07 dated 23rd January 2007.

(Annexures I and II omitted)

Mr. M. Palani, learned Counsel appearing for some of the writ Petitioners contended that the IRDA cannot disregard the provisions of the

Insurance Act, 1938 in the matter of fixation of motor insurance premium. The power is conferred upon the Tariff Advisory Committee which

alone has authority to fix the premium. The present IRDA is a committee packed with officers nominated by the Chairman. The Chairman of the

IRDA cannot revise the tariff as if he is the Tariff Advisory Committee and also ratify his own action as a regulatory authority. He also submitted

that in respect of the goods vehicles, liability towards third party is satisfied from the basic coverage of premium. But in respect of the passenger

vehicle, such third party liability is fastened upon passenger risk. Therefore, it was grossly unfair and unjust to have different methods of premium.

The method of fixation of tariff should be based upon earning capacity of insured and not with reference to the cost inflation index or claim amount

or frequency and expenses involved in servicing the motor transport business. He also further submitted that the passenger premium for third party

risk had been increased by several folds, whereas the passenger fare in respect of the passenger vehicle was not revised in the State of Tamil Nadu

since December, 2001. By enhancing the premium per passenger from Rs. 235/- to Rs. 380/- as per the impugned notification, there is 60%

increase in the current premium which affects the livelihood of the motor vehicle operators.

Supporting the stand of the learned Counsel, Mr. Kandan Doraisamy, the learned Counsel for the association of School managements submitted

that the schools are not to be treated like other regular passenger vehicles. The school buses are used only for fetching students in mornings and

evenings and that many of the schools were run as charitable organisations without any profit motive. Some members of the association also do not

even charge separately for the transport from the parents.

Mr. S.R. Sundaram, learned Counsel for the trade union for Auto Rickshaw drivers contended that no proper hearing was given to their

associations and therefore, the impugned fixation of tariff was illegal and opposed to principles of natural justice.

Mr. J. Srinivasa Mohan, learned Counsel for some of the Petitioners submitted that the policy in respect of motor vehicles is covered by Section

146 of the Motor Vehicles Act, 1988. The policy can only be with respect of third party and there can be only one component of premium.

Therefore, there can not be third party as well as passenger premium. Directing the motor vehicle owners to pay passenger premium was not

contemplated and there is no jurisdiction to demand passenger premium. Once basic premium is levied by the insurer, the question of further

levying passenger premium does not arise which would amount to double premium for the same vehicle. The revision that has been made was

without reference to any class of passengers and no scientific data has been provided for.

Per contra, Mr. M.B. Raghavan, learned Counsel appearing for IRDA as well as Tariff Advisory Committee submitted that the IRDA has taken

pains to collect scientific data on the liability to be incurred by the insurers and also the quantum of expenditure that had gone up considerably for

the insurer to meet the third party liability both due to increased volume of accidents as well as elaborate interpretations of Courts regarding

accident policy. Extensive consultation was also done with the association of stake holders. The present fixation of premium is based on scientific

data. It must also be noted that there cannot be any judicial review in this matter and the issue involved is purely contractual. He further submitted

that Section 147 of the Motor Vehicles Act contemplates two types of liability. Therefore, the premium had taken into account the entire liability

arising out of Sections 146 and 147 of the Motor Vehicles Act. With reference to fixation of premium for goods vehicle, it was based upon the

weight of the vehicle, because in goods vehicle, there are no passengers allowed and it wanted to provide different rates of premium depending

upon the size of the vehicle. The same was the case in respect of the three wheelers. He also submitted that neither the Insurance Act nor the

IRDA Act contemplates hearing of every individual and the very hearing itself is contemplated by the judicial order. A cross section of the stake

holders were heard. To prove the fact, they also produced the minutes of meetings that the IRDA had with the Transporters associations.

Therefore, he prayed for the dismissal of the writ petitions.

Mr. N. Vijayaraghavan, learned Counsel for various insurance companies adopted the arguments of Mr. M.B. Raghavan and also submitted

that unlike before there is no Government monopoly in the insurance sector and it is an opened up sector facing stiff competitions from foreign

companies in this area. Instead of allowing the individual companies to deal with the insured, the IRDA being the regulatory authority as well as the

development authority in the insurance sector was created so that there will be uniformity in the rate. This is very much essential because of

compulsory insurance. The present premium fixed hardly taken into account the liability of the insurance company and most of the public sector

companies are bound to subsidize the motor insurance with the income derived from the other insurances. If it is left to the market fluctuation while

fixing the premium, then the premium rates will go up much higher. It is only because of the controlling authority in the form of IRDA, the insurance

premiums are fixed at reasonable rates.

Mr. Vijayaraghavan also submitted that thanks to the interim orders granted by this Court, some members of the Petitioner associations were

paying only the rate fixed before the impugned order, though number of transport operators have started paying new rates notwithstanding the

interim order. But in case this Court should hold against the transport operators, then they must be directed to pay the balance of insurance

premiums. He further submitted that the interim order is only pending result of the writ petitions and it cannot have any effect beyond the outcome

of the main writ petition.

In the light of the rival contentions, it has to be seen whether the Petitioners have made out any case to interfere with the impugned order?

Before proceeding to deal with the rival contentions, various stages of development with reference to the motor insurance has to be mentioned.

Before the Insurance Act, 1938 was introduced, the law relating to the insurance in the colonial India was covered by the Provident Insurance

Societies Act which regulated the Life Insurance Companies. The said Act was amended by Act 20 of 1928 primarily to provide collection of

statistical information in respect of insurance business other than life insurance business carried on in India by external companies. Subsequently,

Mr. S.C. Sen was appointed to go into the working of insurance companies to make recommendations. It is on the basis of the recommendations,

the Insurance Act, 1938 was enacted. The Act provided for minimum initial working capital and principle of deposits were applied. All schemes of

insurance operated by a society were subjected to actuarial examination so that unsound schemes can be eliminated. Periodical actuarial

investigation was also made into financial conditions of the society. The increased powers of inspection and enquiry was also made. Even after the

enactment was made, there were many insurance sales and service companies themselves operating certain insurance companies and banking

companies got interlocked with the insurance companies to use the monies for speculative business. Therefore, the Central Act, 47 of 1950 was

brought in to plug the loopholes so as to make it difficult for designing financiers to get control of insurance companies or to use insurance funds for

speculative purposes and that provisions were also made to prevent interlocking of interests between the insurance companies and banks.

It is only in the year 1968, the idea of Tariff Advisory Committee was evolved and an amendment was made by the Central Act 62 of 1968.

Part II-B provides for establishment of Tariff Advisory Committee, composition of the Advisory committee and the power to make rules in respect

of matters regarding the said Part. u/s 64UC, the power of the Advisory committee to regulate rates and advantages were also made. The

Advisory committee was to comprise of the Controller of Insurance and a Senior Officer of the office of the Controller nominated by him as a Vice

Chairman and not more than 10 representatives of Indian insurers elected in their individual capacity and not more than four representatives of the

insurers incorporated or domiciled elsewhere India. The secretary of the Committee was an officer of the office of the Controller nominated by the

him. This committee was entitled to discharge functions entrusted to it including if it deemed expedient, control and regulate the rates, advantages,

terms and conditions that may be offered by the insurer in respect of any risk of any class or category of risk.

After these amendments were made, the Tariff Advisory Committee started fixing premium for the insurers of various types of insurance

business. But, however after the amendment was made by the Central Act 62 of 1968 with effect from 1.6.1969, the entire general insurance

business was nationalised by the Parliament by enacting the General Insurance Business (Nationalisation) Act, 1972 (Central Act 57 of 1972). A

public sector company, i.e., General Insurance Corporation and four of its subsidiaries were established. u/s 35 of the General Insurance Business

(Nationalisation) Act subject to such exceptions, restrictions and limitations if any as the Central Government may by notification specify in that

behalf, the Insurance Act 1938 was made to apply to or in relation to the Corporation and every acquiring company as if the Corporation or the

acquiring company as the case may be were an insurer carrying on general insurance business within the meaning of the Act. Therefore, the Tariff

Advisory Committee continued to fix tariff in respect of the nationalised business of general insurance and there were no private operators.

When in the year 1990, premium was fixed by the Committee, the matter was challenged in various High Courts by the transport operators. It

was contended that escalation of premium rates had affected the business so as to offend Article 19(g) of the Constitution and that while fixing

rates, the operators who were stake holders were not heard. The Supreme Court vide its judgment in Jt. Council of Joint Council of Bus Syndicate

and Others Vs. Union of India (UOI) and Others and National Insurance Co. Ltd. and Others, had observed as follows:

After hearing counsel for the different parties we have, however, come to the conclusion that whether directly required by statute or not, it is

appropriate that the parties who are affected by the escalation of the tariff rate should be given a hearing. We agree that such a hearing cannot be

personal in regard to everyone in the field. That would be a physical impossibility. Therefore, on zonal basis representations should be received and

existing representations also could be taken into consideration and group wise hearing should be afforded at all States_ or Union territory

headquarters. The Tariff Advisory Committee may have sittings at these places and where the headquarters of a State or Union Territory or two

States are either at the same place or near about, they could be joined up for one set of hearing. We, however, do not disturb the escalation

already adopted. In case after such a hearing is granted, the Committee is satisfied that alterations are warranted, appropriate reduction of the tariff

should be undertaken. We make it clear that the tariff as a result of this exercise would not be permitted to be enhanced. The exact procedure of

hearing in terms of our direction we do not intend to prescribe but we leave it open to the Committee to adopt a fair way of hearing the parties and

we hope and trust that a fair and reasonable hearing would be extended to the parties or such of them who appear on such occasion or occasions.

The Committee may break itself into groups for convenience of movement and quick disposal of the matter. After the hearing is over at the

different centres, the entire Committee should meet and take its decision after appropriate deliberations.

(Emphasis added)

It was by judicial dicta, such personal hearing was contemplated and there was hardly any challenge to the revision of premium for insurance

business in general and motor insurance in particular. But, however, due to liberalisation in the area of insurance sector and due to policy decision

taken by the Central Government, the insurance business was also opened up for foreign companies'' participation. The Central Government

thought fit to bring registration for the establishment of an authority to protect the interest of the holders of the insurance policy, to regulate,

promote and to ensure orderly growth of insurance industry and also to amend the existing Insurance Act, 1938 brought the Insurance Regulatory

and Development Authority Act, 1999. The Act apart from creating the IRDA, defining duties, powers and functions of the IRDA and also made

extensive amendment to the existing Insurance Act by incorporating First Schedule prescribed u/s 30 of the IRDA Act.

Section 14 provides for duties, powers and functions of the Authority which reads as follows:

Duties, powers and functions of Authority.-

(1) Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and

ensure orderly growth of the insurance business and re-insurance business.

(2) Without prejudice to the generality of the provisions contained in Sub-section (1), the powers and functions of the Authority shall include,-

(a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration;

(b) protection of the interests of the policyholders in matters concerning assigning of policy, nomination by policyholders, insurable interest,

settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance;

(c) specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents;

(d) specifying the code of conduct for surveyors and loss assessors;

(e) promoting efficiency in the conduct of insurance business;

(f) promoting and regulating professional organisations connected with the insurance and re-insurance business;

(g) levying fees and other charges for carrying out the purposes of this Act;

(h) calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries,

insurance intermediaries and other organisations connected with the insurance business;

(i) control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not

so controlled and regulated by the Tariff Advisory Committee u/s 64U of the Insurance Act, 1938 (4 of 1938);

(j) specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and

other insurance intermediaries;

(k) regulating investment of funds by insurance companies;

(l) regulating maintenance of margin of solvency;

(m) adjudication of disputes between insurers and intermediaries or insurance intermediaries;

(n) supervising the functioning of the Tariff Advisory Committee;

(o) specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations referred

to in Clause (f);

(p) specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector;

and (q)exercising such other powers as may be prescribed.

The composition of the IRDA is set out in Section 4 of the Act, which reads as follows:

Composition of Authority.-The Authority shall consist of the following members, namely:

(a) a Chairperson;

(b) not more than five whole-time members;

(c) not more than four part-time members;

to be appointed by the Central Government from amongst persons of ability, integrity and standing who have knowledge or experience in life

insurance, general insurance, actuarial science, finance, economics, law, accountancy, administration or any other discipline which would, in the

opinion of the Central Government, be useful to the Authority:

Provided that the Central Government shall, while appointing the Chairperson and the whole-time members, ensure that at least one person each is

a person having knowledge or experience in life insurance, general insurance or actuarial science, respectively.

Section 11 took care in granting immunity to the proceedings taken by the authority on account of any defect or error including vacancies.

Section 11 reads as follows:

Vacancies, etc. not to invalidate proceedings of Authority.-No act or proceeding of the Authority shall be invalid merely by reason of-

(a)any vacancy in, or any defect in the constitution of, the Authority; or (b)any defect in the appointment of a person acting as a member of the

Authority; or (c)any irregularity in the procedure of the Authority not affecting the merits of the case.

Schedule I read with Section 30 amended various provisions of the Insurance Act, 1938. Insofar as Section 64-UA is concerned, the term of

Controller of Insurance was substituted by Chairperson of the authority. In respect of Section 64-UC which provided for regulating the rates, the

previous approval of the Central Government was dispensed with and it was left to the authority to decide the issue by itself. Therefore, in this

background of development of insurance business and the legislative changes brought about, the claim of the Petitioners will have to be considered

by this Court.

The Supreme Court while dealing with the functions of the Insurance company and the enforcement of terms and conditions of contract

including the power of the regulatory authority to fix the tariff, vide decision in United India Insurance Company Limited Vs. Manubhai

Dharmasinhbhai Gajera and Others, had observed as follows:

The functions of the insurance companies are governed by statute. A contract of insurance, therefore, must subserve the statutory provisions. It

must indisputably be construed having regard to the larger public policy and public interest guiding nationalisation of the insurance companies.

Insurance sector is regulated. The provisions of the Insurance Act are applicable to all insurance companies irrespective of the fact as to

whether they are in public sector or private sector. When a business is regulated, all concerned would be governed thereby.

It is one thing to say that the terms and conditions of a contract are statutory in nature but it is another thing to say that the statute governs or

controls the business itself. It is the latter which is applicable to the fact of the case.

It has a tariff policy. It is completely under the control of the Regulatory Authority. The tariff has to be fixed by the Authority. What should be

the reasonable tariff would again be the subject-matter of exercise of jurisdiction by the Authority. So far as non-tariff policies are concerned, the

insurance companies may charge tariff but the terms and conditions thereof are regulated by the Authority....

With reference to the power of judicial review over such action of insurers, in the very same judgment in paragraphs 39,52,59 and 72, it was

observed as follows:

Another distinction in the approach of the Court in this behalf must also be borne in mind, namely, that a court may exercise its power of

judicial review at the threshold of formation of a contract as was the case in Ramana Dayaram Shetty v. International Airport Authority of India

and the cases where the terms and conditions of contract are to be enforced. Whereas in the former case, the court''s jurisdiction is wider, in the

latter, it is not. We may, however, hasten to add that it does not mean that the court shall not interfere even in a case where the term of the contract

is against the public policy or where in enforcing the same the State acts arbitrarily, unfairly or unreasonably or makes discrimination amongst the

persons similarly situated.

We must, however, place on record that the United Kingdom and Ireland do not have a written constitution. Doctrine of fairness would not be

radiant in a contract in those courts. Decisions rendered in other jurisdictions merely have a persuasive and not a binding nature. A foreign law

should not be applied when the constitutionalism operating in the countries are different. We have to apply the law keeping in view the equality

clause contained in Article 14 of the Constitution of India. It is the heart and soul of our Constitution.

59*...Whereas on the one hand we cannot forget the new market economy and the foreign direct investment, we also cannot shut our eyes to the

ground realities. There is a huge gap between the high-sounding wants of the Government and the realities on the ground. It is essential that while

on the one hand, the insurance companies are not put to undue burden keeping in view the changes in the statute as also the policy decisions of the

Central Government, they also cannot be permitted to act wholly arbitrarily and unreasonably....

...however, we would like to observe that keeping in view the role played by the insurance companies, it is essential that the Regulatory

Authority must lay down clear guidelines by way of the Regulations or otherwise. No doubt, regulations would be applicable to all the players in

the field. The duties and functions of the Regulatory Authority, however, are to see that the service providers must render their services keeping in

view the nature thereof....

With reference to the first contention that the tariff was fixed by the IRDA and not by the Tariff Advisory Committee is concerned, the said

argument fails to take into account the change in law and more particularly, Schedule I read with Section 30 of the IRDA Act, 1999. The

composition of the Committee has now been changed and the IRDA has been given power to fix the rate if there is no rates fixed by the Tariff

Advisory Committee. Section 14(2)(i) extracted above clearly shows that if it is not controlled or regulated by the Tariff Advisory Committee u/s

64-U of the Insurance Act, 1938, then the IRDA can control and regulate the rates. In this context, the Tariff Advisory Committee in its meeting

held on 24.8.2006 had decided that the current tariff should be withdrawn effective from the date to be decided by the Chairman of the TAC.

Accordingly, the tariff rates in respect of motor and other insurance stood withdrawn with effect from 1.1.2007. This fact was also communicated

by a communication, dated 4.12.2006. It was thereafter, the IRDA exercising power u/s 14(2)(i) of the IRDA Act, started the process of

consultation with various stake holders in the matter of fixation of new tariff. The minutes of various meetings held between the transport

associations and the IRDA officials were set out in pages 3 to 18 of the typed set filed by Respondents 1 and 2, dated 6.6.2011. It is unnecessary

to set out the discussions between the parties. It is suffice that the process of consultation was held in terms of the judgment of the Supreme Court

in Jt. Council of Bus Syndicate''s case (cited supra).

But, subsequent to the said consultation process, the Exposure Draft was circulated by communication, dated 4.1.2011 by the IRDA. In that

communication, the queries raised by the transporters and the response by the IRDA were set out. While the claim of the Transporters to fix the

liability against various insurance claims though strictly do not come within the purview of the IRDA Act, the IRDA had recommended to the

Central Government for amendment of the Motor Vehicles Act. With reference to the claims for passengers should be segregated from the claims

for non passengers, the IRDA''s response was as follows:

The law treats passengers and other third parties on equal footing. However efforts are on to work out separate data for passenger and non-

passengers for the future by the Insurance Information Bureau (IIB).

With reference to the need for revision, the IRDA in the Exposure Draft in paragraphs 4 to 8 had responded as follows:

Statistics compiled by the Insurance Information Bureau (IIB) of the Authority show that the motor third party insurance portfolio for

commercial vehicles is consistently making losses. The summary of incurred claims ratio for preceding 2 years for motor third party insurance for (i)

Good carrying vehicles (Public Carrier) and (ii)Passenger Carrying vehicle (4 wheelers), are given below:

TP Incurred Claims Ratio

Class Code Description 2007-08 2008-09

17 Goods Carrying Public 152.50 173.08

(other than 3 wheelers)

21 Passengers Carrying 4 158.62 149.94

wheeler

The data for third party insurance for all classes of vehicles for 2007-08 and 2008-09 years are placed in Annexure-II(a), II(b) respectively.

The Authority is of the view that the issue of review of motor third party premium deserves due importance and urgency. The data clearly shows

that the portfolio is running at a considerable loss to the insurance companies. The development of claims for this portfolio also takes several years

as illustrated in Annexure-III. The development is illustrated separately for all classes of vehicles in respect of (i) death (ii) third party property

damage and (iii)other causes which can be accessed in the website of IRDA www.irda.gov.in (""what is New"" / 09th Nov, 2010).

This class of insurance being mandatory, the motor pool whereby the insurers are sharing the loss, is also bursting at seems, with the long term

liability threatening to run to 197%. It is also to be noted that as per IRDA estimates the insurance premium represent less than 1% of operating

cost of transporters.

In view of the above factors placing severe strain on the underwriting of mandatory third party insurance business by the general insurers, it has

become necessary to come out with this exposure draft reviewing the third party premium and replace the current tariff by rates as proposed in

column-3 of Annexure-I.

The rates proposed are the premium that can be charged by insurers till further orders.

Finally, in the meeting held on 8.3.2011 with All India Motor Transport Congress, the queries raised by the transporters were answered by

them point by point and that in the minutes, the Chairmen of the IRDA had informed the transporters which is as follows:

Chairmen expressed concerns of IRDA based on actuarial working that the provisions of reserves made by the insurers for long term liability were

in fact under estimated. Chairman allayed the doubts of the transporters regarding accuracy of the estimates by explaining that unlike the past

decade when data of only one company was available, today the Insurance Information Bureau had transactional level data of all companies. The

analysis is done by experts in the field of actuarial science. Hence the analysis done on such data has a sound basis.

It was thereafter, the impugned order came to be issued on 15.4.2011. The impugned notification had the following salient features. In

Annexure-I, types of vehicles, goods carrying vehicles, passenger vehicles and three wheeler and four wheelers were subjected to different revision

of tariff. The IDA had also informed that the last revision was done in 2007 and such a long gap between one revision and the other had an

avoidable strain on policy holders as well as on the insurance companies. Therefore, there was a need to review the premium regularly depending

upon the average claims which have been awarded by the courts, frequency of claims for each class of vehicle and inflation among other factors

were to be considered.

By Annexure II to the impugned order, it was decided to have a review of premium on annual basis and a formula for future was set out, which

reads as follows:

The premium for the Motor TP polices shall be determined by using the formula:

P(t) = C1(t) * CII(t-1) + C2(t) where P(t) is the Motor TP premium applicable to the financial year ''t''.

CII(t-1) is the Cost Inflation Index for the year ''t-1'' as notified by CBDT, and C1(t) and C2(t) are the parameters applicable to the financial year

''t'' whose values shall be as determined and notified by the Authority in each financial year based on the experience measured in terms of average

claim amounts, frequency and expenses involved in serving the Motor TP business. The values of the parameters C1(t) and C2(t) may vary

according to the class of vehicle.

Therefore, it cannot be said that the procedure adopted by the IRDA was contrary to the spirit of the Act or opposed to the dictum laid down

by the Supreme Court in this regard. The argument that fancy figures were arrived at including double levy of tax also cannot be accepted.

With reference to the power of the IRDA to revise the premium, Mr. M.B. Raghavan, learned Counsel referred to a judgment of the Kerala

High Court in All Kerala Bus Operators Organisation and etc. v. Insurance Regulatory and Development Authority reported in All Kerala Bus

Operators Organisation and Vs. Insurance Regulatory and Development Authority, In that case, the Kerala High Court had considered the earlier

revision made by the Tariff Advisory Committee, dated 4.12.2006 and in paragraphs 5 to 7 had observed as follows:

Coming to the provisions of the Insurance Regulatory and Development Authority Act, 1999, it can be seen that Section 14(2)(i) of that Act

provides that without prejudice to the generality of the provisions contained in Sub-section (1) of Section 14, the powers and functions of the

IRDA shall include control and regulation of the rates that may be offered by the insurers in respet of general insurance business not so controlled

and regulated by the TAC u/s 64U of the Insurance Act. So much so, the TAC having withdrawn the rates fixed by it, it was well within the

competence of the IRDA to control and regulate the rates that may be offered by the insurers in respect of general insurance business regarding the

fields of insurance in question. Both the enactments under consideration are Central legislations, for the purpose of regulating and controlling the

field of insurance and make reference to each other. So much so, the TAC was well within its authority to take its decision that it was not

expedient to continue to have the tariff rates fixed by it and therefore, to withdraw the same. Once that was done, the field occupied by the rates

fixed by the TAC u/s 64UC of the Insurance Act fell vacant and therefore, the IRDA was well within authority referable to Section 14(2)(i) to

control and regulate the rates of those fields of insurance. Hence, there is neither any jurisdictional error nor lack of competence for the IRDA to

have taken the decision to revise the insurance tariffs. Therefore, there is no legal infirmity or jurisdictional error in the decision-making process by

which the IRDA has fixed the tariffs for areas not covered by any TAC decision.

...I also find that there is no jurisdictional error or lack of authority for the IRDA to have rendered the policy decision which it has. Having

regard to the well settled parameters of law relating to judicial review of policy decision, I do not find any ground to sustain the challenge, even on

facts, particularly when it has been demonstrated that IRDA had adverted to and considered all relevant materials and had afforded an opportunity

of hearing.

Having found as above and having repelled the contentions, also on facts, the contention that the field in question relates to compulsory

insurance does not appeal. Section 143 of the Motor Vehicles Act, 1988 makes third party insurance cover obligatory for the use of a motor

vehicle. Such obligation is part of the social obligations recognised and imposed on the users of motor vehicles by law, in terms of the Constitution.

At the same time, institutions like IRDA, TAC etc. are created by law to ensure that checks and balances are maintained in the field of insurance

business. The compulsion of a person by Section 143 of the Motor Vehicles Act to have a third party insurance cover for a motor vehicle does not

give him any added advantage to stand against any decision of the IRDA on the question of tariff rates in relation to motor vehicle policies, unless

the impugned imposition is per se arbitrary, irrational and made contrary to due procedure. Therefore, the socialistic goal sought to be achieved by

Section 143 of the Motor Vehicles Act, is no plea against the rates, when they are not demonstrated to be arbitrary.

The learned Counsel for IRDA also referred to the judgment of the Karnataka High Court in The Karnataka State Bus Owners Federation,

Bangalore v. Union of India and Ors. in W.P. No. 2980 of 2007 (GM-RES), dated 12.10.2007 for the very same proposition. In that case, once

again the High Court was dealing with the earlier tariff fixed on 4.12.2006. In dealing with the power of the IRDA, in paragraphs 11 and 12, it was

observed as follows:

It is to be noticed that the Tariff Advisory Committee is constituted u/s 64UA of the Insurance Act, 1938. Part IIB of the Insurance Act

consist of Section 64U and 64UA which would relate to Tariff Advisory Committee and Section 64UC provides the power to the Advisory

Committee to regulate the rate etc. Among other things the Tariff Advisory Committee may from time to time control and regulate the rates that

may be offered by the insurers in respect of any risk or of any class or category of risks among other things. In fact, such rates as determined shall

be binding on the insurers. Sub-section (3) of Section 64UC also provides that every decision of the Tariff Advisory Committee shall be valid only

after and to the extent it is ratified by the Authority and every such decision shall take effect from the date on which it is so ratified by the Authority.

In the instant case, it is to be noticed that the earlier tariff rates fixed which was the subject matter of the earlier writ petition was withdrawn.

Section 14(1) and (2) of the IRDA Act, 1999 provides duties, powers and functions of the Authority. Sub-section (2)(i) of Section 14

provides control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance

business not so controlled and regulated by the Tariff Advisory Committee u/s 64U of the Insurance Act, 1938.

Therefore, the contentions relating to the lack of jurisdiction and wrongful procedure in not granting personal hearing have to be necessarily

rejected.

The other contention that the educational institutions stand on different footing is concerned, the same also does not stand to reason. In the

present case, the issue is not the ownership of the vehicle or purpose for which the vehicle is used. Admittedly, the educational institutions are

running the motor vehicles on public road and carrying students (passengers) subject to risk and also third party claims. Therefore, the Act being

the beneficiary piece of legislation and also intended to protect the vehicle owners from the claim of third parties, necessarily the vehicles will have

to be insured. Therefore, there cannot be distinction between the educational institutions putting the motor vehicles carrying on passengers on road

and the private operators. In this context, the educational institutions do not enjoy different status.

The Supreme Court even in respect of minority educational institutions having protection under Article 30(1) of the Constitution has held that

such institutions are subjected to all the municipal laws, taxing statutes and labour laws and in such circumstances, the character of the employer is

irrelevant. The Supreme Court vide its judgment in Christian Medical College Hospital Employees'' Union and Another Vs. Christian Medical

College Vellore Association and Others, had categorically held that in the matter of application of laws relating to public health, taxation, municipal

laws and labour legislation, the minority managements cannot claim any privilege and those laws must be uniformly applied to the workmen

employed by those institutions irrespective of character of those institutions. The Supreme Court had forewarned that if not done in that fashion, it

may result in maladministration of those institutions. It is necessary to extract the following passage found in paragraph 18 of the said judgment and

it reads as follows:

...If a creditor of a minority educational institution or a contractor who has built the building of such institution is permitted to file a suit for

recovery of the money or damages as the case may be due to him against such institution and to bring the properties of such institution to sale to

realise the decretal amount due under the decree passed in such suit is Article 30(1) violated? Certainly not. Similarly the right guaranteed under

Article 30(1) of the Constitution is not violated, if a minority school is ordered to be closed when an epidemic breaks out in the neighbourhood, if a

minority school building is ordered to be pulled down when it is constructed contrary to town planning law or if a decree for possession is passed

in favour of the true owner of the land when a school is built on a land which is not owned by the management of a minority school. In the same

way if a dispute is raised by an employee against the management of a minority educational institution such dispute will have necessarily to be

resolved by providing appropriate machinery for that purpose. Laws are now passed by all the civilised countries providing for such a machinery....

Hence that contention must also fail.

The other contention is that in respect of the goods vehicles, the tariff was made on the basis of the weight of the vehicle and it is arbitrary. The

said argument is also made without any basis. The authorities had adopted a reasonable classification to charge according to the weight of the

vehicle and it cannot be said to be either irrational or unreasonable.

Finally, the learned Counsel for the Petitioners submitted that in the light of the interim order, they have paid the old rates and that should this

Court uphold the revision, then it will be an unreasonable burden on them to pay the balance amount. Therefore, they prayed that it should be

made only for future and that for the past period, they should be left off with the payment already made. This Court is unable to agree with the said

submission. It is the Petitioners who had obtained the interim order and such interim orders are always subject to the result in the main writ petition.

If such reliefs are given only for the people who came to the court, it will look as if persons who have paid the new tariff as per law, were punished

for abiding the law. In this context, it is necessary to refer to a judgment of the Supreme Court in Mahanadi Coalfields Ltd. v. Orient Paper and

Industries Ltd. the Supreme Court had observed as follows:

While the purpose of an interlocutory order is to preserve in status quo the rights of the parties during the pendency of the litigation, the Court is

also required to put into the scales the need to protect the interest of the Appellant if the writ petitions ultimately fail and the uncertainty as to their

results is resolved in Appellant''s favour. It would appear that if the dispensation ordered by the High Court prevails, the Appellant, even in the

event of its success, would be faced with a fait accompli and it would be well-nigh impossible for the Appellant to gather the dues from the

innumerable purchasers of coal....

Further, the argument that it would amount to double recovery of premium, i.e., one on the passenger and the other on third party claims

cannot be accepted. Merely because the insurance companies do not submit figures in respect of the claims from the passengers or from the third

party or that the figures furnished in respect to the transporters showed that in respect of passenger risk claims, it was on the lower side will not

give rise to any cause of action for the Petitioners to challenge that they were saddled with unjust claims.

The other arguments based upon Section 147 of the Motor Vehicles Act to the effect that the third party claims are consisting with two sub

parts, i.e. claim for passengers, who are also normally considered as third parties and also claim from actual third parties do not stand to reason.

As per Section 147, it is only the claim against the passengers, they are bound to insure also cannot be accepted. It has to be seen whether

premium has been fixed in a reasonable manner so as to meet all contingencies arising out of third party claims. As rightly contended by Mr. N.

Vijayaraghavan, the third party claims even in respect of individuals have gone up considerably over the period and that thanks to the liberal grant

of compensation by courts, liabilities of the Insurance companies have far-exceeded than the actual premium paid also cannot be rejected.

The scope of judicial review by courts in respect of premiums and coverage came to be considered by the Supreme Court in LIC of India and

Another Vs. Consumer Education and Research center and Others, . In paragraphs 23,26,27 and 53 of the said judgment, the Supreme Court

had observed as follows:

Every action of the public authority or the person acting in public interest or any act that gives rise to public element, should be guided by

public interest. It is the exercise of the public power or action hedged with public element (sic that) becomes open to challenge. If it is shown that

the exercise of the power is arbitrary, unjust and unfair, it should be no answer for the State, its instrumentality, public authority or person whose

acts have the insignia 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, simpliciter do in the field of private law. Its actions must be based on some rational and relevant

principles. It must not be guided by irrational or irrelevant considerations. Every administrative decision must be hedged by reasons....

This Court has rejected the contention of an instrumentality or the State that its action is in the private law field and would be immuned from

satisfying the tests laid under Article 14. The dichotomy between public law and private law rights and remedies, though may not be obliterated by

any strait-jacket formula, it would depend upon the factual matrix. The adjudication of the dispute arising out of a contract would, therefore,

depend upon facts and circumstances in a given case. The distinction between public law remedy and private law field cannot be demarcated with

precision. Each case will be examined on its facts and circumstances to find out the nature of the activity, scope and nature of the controversy. The

distinction between public law and private law remedy has now become too thin and practicably obliterated.

In the sphere of contractual relations the State, its instrumentality, public authorities or those whose acts bear insignia of public element, action

to public duty or obligation are enjoined to act in a manner i.e. fair, just and equitable, 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 or appear arbitrary in its decision. Duty to act fairly is part of fair procedure

envisaged under Articles 14 and 21. Every activity of the public authority or those under public duty or obligation must be informed by reason and

guided by the public interest.

We have, therefore, no hesitation to hold that in issuing a general life insurance policy of any type, public element is inherent in prescription of

terms and conditions therein. The Appellants or any person or authority in the field of insurance owe a public duty to evolve their policies subject to

such reasonable, just and fair terms and conditions accessible to all the segments of the society for insuring the lives of eligible persons. The

eligibility conditions must be conformable to the Preamble, Fundamental Rights and the Directive Principles of the Constitution. The term policy

under Table 58 is declared to be accessible and beneficial to the large segments of the Indian society. The rates of premium must also be

reasonable and accessible. Accordingly, we hold that the declaration given by the High Court is not vitiated by any manifest error of law warranting

interference. It may be made clear that with a view to make the policy viable and easily available to the general public, it may be open to the

Appellants to revise the premium in the light of the law declared in this judgment but it must not be arbitrary, unjust, excessive and oppressive....

Even if the parameters shown by the Supreme Court are applied, the Petitioners have not made out any case. The impugned order is based

upon rational classification and subject to sound reasoning and evolved after public consultation with the stake holders. In view of the above, all the

writ petitions will stand dismissed. The Petitioners are given eight weeks time to pay the balance of the premium amounts to the respective insurers

without fail. However, there will be no order as to costs. Consequently, connected miscellaneous petitions stand closed.