M/S TEXCO MARKETING PVT. LTD. versus TATA AIG GENERAL INSURANCE COMPANY LTD. & ORS. on 9 November 2022

[2022] 9 S.C.R. 1031

M/S TEXCO MARKETING PVT. LTD.

v.

TATA AIG GENERAL INSURANCE COMPANY LTD. & ORS.

(Civil Appeal No. 8249 of 2022)

NOVEMBER 09, 2022

[SURYA KANT AND M. M. SUNDRESH, JJ.]

Consumer Protection Act, 1986 – ss. 2(1)(g), 2(1)(r), 3 & 14– Consumer Protection Regulations, 2005 – Consumer ProtectionAct, 2019 – ss. 2(46), 2(47), 47, 49 & 59 – Insurance Regulatoryand Development Authority (Protection of Policy Holders Interests)Regulations, 2002 – Insurance Claim – Repudiation of – ExclusionClause – Appellant secured a Standard Fire and Special Perils policyfrom the respondent on 28.07.2012 – Policy was effective from28.07.2012 to 27.07.2013 and it was meant to cover a shop situatedin the basement of the building – However, the exclusion clause ofthe contract specified that it did not cover the basement – Shop metwith a fire accident for which the appellant raised a claim – Claimwas repudiated by the respondent, taking umbrage under theexclusion clause – On challenge, State Consumer held that therewas no adequate disclosure and the insurer was deficient in serviceand indulged in unfair trade practice – National Commissionoverturned the order passed by the State Commission by placingreliance upon the exclusion clause – Whether an exclusion clausedestroying the very contract knowingly entered, can be permittedto be used by a party who introduced it, becomes a beneficiary andthen to avoid its liability–Held: An exclusion clause has to beunderstood on the touch-stone of the doctrine of reading down inthe light of the underlining object and intendment of the contract –It can never be understood to mean to be in conflict with the mainpurpose for which the contract is entered – It is the foremost duty ofthe insurer to give effect to a due disclosure and notice in its trueletter and spirit – Once, the State Commission or the NationalCommission, as the case may be, comes to the conclusion that theterm of a contract is unfair, particularly by adopting an unfair tradepractice, the aggrieved party has to be extended the resultant relief– Once it is proved that there is a deficiency in service and thatrespondent knowingly entered into a contract, notwithstanding the

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Aexclusion clause, the consequence would flow out of it – As per thecommon law principle of acquiescence and estoppel, respondentcannot be allowed to take advantage of its own wrong.

Contract Act, 1872 – ss. 2, 10, 17, 18 & 19 – Adhesioncontracts/Standard Form of Contract – Insurance Contract – TheseBcontracts are prepared by the insurer having a standard formatupon which a consumer is made to sign – The insurer who, beingthe dominant party dictates its own terms, leaving it upon theconsumer, either to take it or leave it - Such contracts are obviouslyone sided, grossly in favour of the insurer due to the weak bargainingpower of the consumer.C

Doctrine of Blue Pencil – Discussed.

Partly allowing the appeal, the Court

Conclusion

Doctrine of Blue Pencil – Discussed.

Partly allowing the appeal, the Court

HELD: 1.1 Adhesion contracts are otherwise calledStandard-Form Contracts. Contracts of Insurance are one suchDcategory of contracts. These contracts are prepared by the insurerhaving a standard format upon which a consumer is made to sign.He has very little option or choice to negotiate the terms of thecontract, except to sign on the dotted lines. The insurer who,being the dominant party dictates its own terms, leaving it uponEthe consumer, either to take it or leave it. Such contracts areobviously one sided, grossly in favour of the insurer due to theweak bargaining power of the consumer. The concept of freedomof contract loses some significance in a contract of insurance.Such contracts demand a very high degree of prudence, goodfaith, disclosure and notice on the part of the insurer, beingFdifferent facets of the doctrine of fairness. Though, a contract ofinsurance is a voluntary act on the part of the consumer, theobvious intendment is to cover any contingency that might happenin future. A premium is paid obviously for that purpose, as thereis a legitimate expectation of reimbursement when an act of GodGhappens. Therefore, an insurer is expected to keep that objectivein mind, and that too from the point of view of the consumer, tocover the risk, as against a plausible repudiation. [Paras 9 &10][1040-E-H]

1.2 An exclusion clause in a contract of insurance has to beinterpreted differently. Not only the onus but also the burdenH

lies with the insurer when reliance is made on such a clause.This is for the reason that insurance contracts are specialcontracts premised on the notion of good faith. It is not a leverageor a safeguard for the insurer, but is meant to be pressed intoservice on a contingency, being a contract of speculation. Aninsurance contract by its very nature mandates disclosure of allmaterial facts by both parties. An exclusion clause has to beunderstood on the touch-stone of the doctrine of reading down inthe light of the underlining object and intendment of the contract.It can never be understood to mean to be in conflict with themain purpose for which the contract is entered. A party, who reliesupon it, shall not be the one who committed an act of fraud, coercionor mis-representation, particularly when the contract along withthe exclusion clause is introduced by it. Such a clause has to beunderstood on the prism of the main contract. The main contractonce signed would eclipse the offending exclusion clause when itwould otherwise be impossible to execute it. A clause or a termis a limb, which has got no existence outside, as such, it existsand vanishes along with the contract, having no independent lifeof its own. It has got no ability to destroy its own creator, i.e. themain contract. When it is destructive to the main contract, rightat its inception, it has to be severed, being a conscious exclusion,though brought either inadvertently or consciously by the partywho introduced it. [Paras 11 & 12][1041-A-E]

Duty of Disclosure, Good Faith and Notice 1.3 The principles governing disclosure, good faith andnotice are founded on the common law principle of fairness. Theseprinciples are meant to be applied with more rigour in standardform contracts such as insurance contracts. Such an applicationis warranted much more when we deal with an exclusion clause.A very high standard of good faith, disclosure and due complianceof notice is required on the part of the insurer, keeping in viewthe unique nature of an insurance contract. An act of good faithon the part of the insurer starts from the time of its intention toexecute the contract. A disclosure should be a norm and whatconstitutes a material fact requires a liberal interpretation. It isonly when an insurer is not intending to act on an exclusion clause, ABC

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Athe aforesaid principles may not require a strict compliance. Thethree elements are interconnected and overlapping. It is theforemost duty of the insurer to give effect to a due disclosureand notice in its true letter and spirit. When an exclusion clauseis introduced making the contract unenforceable on the date onwhich it is executed, much to the knowledge of the insurer, non-Bdisclosure and a failure to furnish a copy of the said contract byfollowing the procedure required by statute, would make the saidclause redundant and non-existent. [Paras 14 & 15][1044-A-E]

Doctrine of Blue Pencil

C1.4 In such a situation, the doctrine of “blue pencil” whichstrikes off the offending clause being void ab initio, has to bepressed into service. The said clause being repugnant to the maincontract, and thus destroying it without even a need foradjudication, certainly has to be eschewed by the Court. The veryexistence of such a clause having found to be totally illegal andDdetrimental to the execution of the main contract along with itsobjective, requires an effacement in the form of declaration of itsnon-existence, warranting a decision by the Court accordingly.[Para 22][1049-D-E]

2. The consumer under the Consumer Protection Act, 1986Eis at an elevated place than the plaintiff in a suit. A dispute beforethe Consumer Commission is to be seen primarily from the pointof view of the consumer as against the civil suit. It is only toavoid any possible bottleneck in granting the relief. Thejurisdiction of the Commission has been clearly demarcated,Fbeing in addition to any other laws in force as stipulated underSection 3 of the 1986 Act. The Act being a self-contained one,requires to be strengthened by the procedural laws, as theintention now is to facilitate a relief and not to curtail it. Theaforesaid view of ours is fortified by Regulation 26 of theConsumer Protection Regulations, 2005 which cautions theGCommission to avoid the cumbersome procedure contemplatedunder the Code of Civil Procedure. Clearly, the object is to makethe Commission as consumer friendly as possible. Having notedthe provision governing unfair trade practice, it is rather crystalclear that it takes in its sweep all forms of unfair trade practice.H

One cannot give a restrictive or narrow interpretation to thisprovision which starts from an invitation, preceded by an offer,followed by an acceptance, conduct, and execution of the contract.Court’s finding against one of the parties qua the existence ofunfair trade practice has to be transformed into an adequate reliefin favour of the other, particularly in light of Section 14 of the1986 Act. One has to keep in mind the legislative intendmentbehind the Act. Once again, we reiterate the definition clausewhich gives adequate ammunition to the Court to declare anyform of unfair trade practice as illegal while granting theappropriate relief. [Paras 28 & 29][1055-F-H; 1056-A-C]

3. The definition clause under sub-section (46) of Section 2of the Consumer Protection Act, 2019 gives a very broad meaningof unfair contract. As in the other provisions, it does not restrictitself to the few illustrative circumstances mentioned under sub-clause (i) to (vi). Ultimately, it is for the State Commission or theNational Commission to declare a contract as unfair contract.Though, these two provisions are merely defining the terms, theyactually empower the Commission to go into the issue qua theunfair nature of the terms of a contract and also the trade practice.Once, the State Commission or the National Commission, as thecase may be, comes to the conclusion that the term of a contractis unfair, particularly by adopting an unfair trade practice, theaggrieved party has to be extended the resultant relief. The abovesaid view is further strengthened by Sections 47 and 49 of the2019 Act. [Paras 30 & 31][1057-H; 1058-A-C]

4. Section 47 and 58 of the 2019 Act have been introducedto facilitate the State Commission and the National Commissionto exercise jurisdiction over a contract which is unfair. As stated,the power is not only with respect to identifying a contract asunfair or not, but also to grant the consequential relief. Undersub-section (2) of Section 49 and 59 of the 2019 Act, the StateCommission and the National Commission, respectively, maydeclare any terms of the contract being unfair to any consumer tobe null and void. The principle governing the doctrine of civilremedy of a contract is well enshrined in this provision. In theseprovisions, there exists ample power to declare any terms of the AB

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Acontract as unfair by the State Commission and the NationalCommission. The words “any terms of the contract” wouldempower the State Commission and the National Commission toexercise unrestricted jurisdiction over any particular term of acontract, if in its opinion, its introduction by the insurer has certainelements of unfairness. The consequence of the declaration ofBthat term as unfair, would make the contract active and executableto the benefit of the consumer. Therefore, this provision takescare of a possible mischief by the insurer as against the consumer.This Court is conscious of the fact that the aforesaid provisionshave been introduced under the new 2019 Act. However, theCintendment of these provisions could be seen as implied evenunder the prior Act, i.e. the Consumer Protection Act, 1986.[Paras 32-35][1059-G-H; 1060-A-D]

ANALYSIS

5. Both the forums have held concurrently that respondentDNo. 1 was conscious of the fact that the contract was entered intofor insuring a shop situated in the basement. The aforesaidposition is not only a factual one but also accepted by therespondents as no challenge has been laid against the impugnedorder. Similarly, there was no specific denial on the non-Ecompliance of adequate notice. The National Commission hasnot given any finding on this aspect, though it was dealt with inextenso by the State Commission. On a reading of Section 21(A)of the Consumer Protection Act, 1986, it is clear that it is notakin to Section 96 of the Code of Civil Procedure, 1908. Evenotherwise, the impugned order has not considered all the relevantFmaterials which were duly taken note of by the State Commission.[Para 36][1061-A-C]

6. Once it is proved that there is a deficiency in serviceand that respondent No. 1 knowingly entered into a contract,notwithstanding the exclusion clause, the consequence would flowGout of it. This Court has already discussed the scope and ambit ofthe provisions under the Indian Contract Act, 1872. Even as perthe common law principle of acquiescence and estoppel,respondent No. 1 cannot be allowed to take advantage of its ownwrong, if any. It is a conscious waiver of the exclusion clause by H

respondent No. 1. Under the impugned order, this court has havealready taken note of and discussed, the findings of the StateCommission, which are indeed approved by the NationalCommission. These findings are sufficient enough to come tothe conclusion that the terms of the contract are unfair, particularlythe exclusion clause, and that respondent No. 1 has indulged inunfair trade practice. In such view of the matter, the decision ofthe National Commission cannot be sustained as the appellantcannot be non-suited only on the ground of mere deficiency inservice without taking note of the fact that it is the duty of theForum to grant the consequential relief by exercising the powerunder Section 14(d) and 14(f) of the Consumer Protection Act,1986 which mandates the payment of adequate compensation byway of an award. The said provision makes it consequential ingranting adequate compensation once it finds deficiency, theexistence of unfair terms in the contract and unfair trade practiceon the part of the other party. In other words, a party is entitledfor the relief which the law provides. Non-compliance of Clauses(3) and (4) of the IRDA Regulation, 2002 preceded by unilateralinclusion, and thereafter followed by the execution of the contract,receiving benefits, and repudiation after knowing that it wasentered into for a basement, would certainly be an act of unfairtrade practice. This view is fortified by the finding that theexclusion clause is an unfair term, going against the very objectof the contract, making it otherwise un-executable from itsinception. [Para 37-39][1061-D-H; 1062-A-B]

Shivram Chandra Jagarnath Cold Storage v. New IndiaAssurance Co. Ltd. (2022) 4 SCC 539; ManmohanNanda v. United Insurance (2022) 4 SCC 582 : 2022(3) JT 338; Modern Insulators Ltd. v. OrientalInsurance Co. Ltd. (2000) 2 SCC 734 : [2000] 1 SCR1076; Beed District Central Coop. Bank Ltd. v. State ofMaharashtra, (2006) 8 SCC 514 : [2006] 6 Suppl. SCR895 – relied on.

N. Murugesan v. Union of India (2022) 2 SCC 25 :2021 (10 ) JT 264; George Mitchell (Chesterhall) Ltdv Finney Lock Seeds Ltd. (1983) Law Reports Q.B.284); United India Insurance Co. Ltd. v. M.K.J.Corporation (1996) 6 SCC 428 : [1996] 5 Suppl. SCR

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A20; Bharat Watch Company v. National Insurance Co.Ltd. 2019 (6) SCC 212: [2019] 6 SCR 302; IREO GraceRealtech (P) Ltd. v. Abhishek Khanna, (2021) 3 SCC241: 2021 (1 ) JT 323 - referred to.

CCIVIL APPELLATE JURISDICTION : Civil Appeal No.8249of 2022.

From the Judgment and Order dated 31.01.2018 of the NationalConsumer Disputes Redressal Commission at New Delhi in First AppealNo.275 of 2016.D

A. K. Ganguli, Sr. Adv., Joydeep Sen, Rohit Dutta, Guddu Singh,Arunabh Ganguli, Ms. Shalini Kaul, Ms. Priyata Chakraborty, Advs. forthe Appellant.

Mrs. Shantha Devi R., Garvesh Kabra, Arihant Jain, Advs. forEthe Respondents.

The Judgment of the Court was delivered by

M. M. SUNDRESH, J.

Leave granted.

FHeard learned counsel for the parties at length.

ON FACTS

1. The appellant secured a Standard Fire & Special Perils policyfrom the respondent on 28.07.2012. The policy was effective from28.07.2012 to 27.07.2013. It was meant to cover a shop situated in theGbasement of the building. However, the exclusion clause of the contractspecifies that it does not cover the basement. Due inspection of the shopwas made which was actually situated on the other side of the roadfrom the office of respondent No. 1. Not only this shop of the appellant,but yet another shop similarly situated, was also insured by respondentHNo. 1. The appellant continued to pay the premium promptly.

2. The appellant put up further construction, for which due noticewas given and due inspection was also made. The shop met with a fireaccident for which the appellant raised a claim. The surveyor ofrespondent No. 1 also made an inspection, on the basis of which theappellant was instructed to refurnish its shop for the purpose of dueevaluation. While arriving at the sum payable, the surveyor did noticethe fact that the earlier inspections were made and that the fact that theshop was in a basement was to the knowledge of the insurer. The claimmade was repudiated by respondent No. 1, taking umbrage under theexclusion clause.

3. The State Consumer Disputes Redressal Commission(hereinafter referred to as ‘the State Commission’) rejected thecontention of respondent No. 1 on the premise that there was no adequatedisclosure, the mandatory provisions have not been followed, as suchthe insurer was deficient in service and indulged in unfair trade practice.The fact that a similarly placed shop was also covered, was not in dispute.The amount payable is only after due deduction of the goods meant forthe third party.

4. The aforesaid decision was overturned by the NationalConsumer Disputes Redressal Commission (hereinafter referred to as‘the National Commission’), despite a finding to the effect that respondentNo. 1 was not in compliance of the mandate of the law and inspectionwas indeed done prior to the execution of the contract, and even thereafter.Having found a deficiency in service, it placed reliance upon the exclusionclause in setting aside the decision of the State Commission while grantinga sum of Rs.7.5 lakhs. It is this decision of the National Commissionwhich is under challenge before us.

SUBMISSION AT THE BAR

5. Shri. A.K. Ganguli, learned senior counsel appearing for theappellant submitted that the National Commission has not overturnedthe reasoning of the State Commission both on facts and law. Whenonce there is a finding which is not in dispute, the consequence wouldfollow.

6. On the contrary, it is submitted by Smt. Shantha Devi R., learnedcounsel appearing for the respondents that the existence of the exclusionclause is not in dispute. Admittedly, the shop was situated in the basement,as such, the mere fact that the decision of the National Commission was AB

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Aaccepted would not disentitle the respondents to contend that the findingthat there was knowledge even at the time of the execution of the contract,is not correct. In any case, it cannot be the basis for restoring the decisionof the State Commission.

GRAVAMEN OF THE CASE

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7. “Whether an exclusion clause destroying the very contractknowingly entered, can be permitted to be used by a party who introducedit, becomes a beneficiary and then to avoid its liability?”

PRINCIPLES

Adhesion ContractC

8. Black’s Law Dictionary defines “Adhesion Contract” as:

“A standard-form contract prepared by one party, to be signed bythe party in a weaker position, usually a consumer, who has littlechoice about the terms. Also termed Contract of adhesion;Dadhesory contract; adhesionary contract; take it or leave it contract;leonire contract.”

9. Adhesion contracts are otherwise called Standard-FormContracts. Contracts of Insurance are one such category of contracts.These contracts are prepared by the insurer having a standard formatEupon which a consumer is made to sign. He has very little option orchoice to negotiate the terms of the contract, except to sign on the dottedlines. The insurer who, being the dominant party dictates its own terms,leaving it upon the consumer, either to take it or leave it. Such contractsare obviously one sided, grossly in favour of the insurer due to the weakbargaining power of the consumer.F

10. The concept of freedom of contract loses some significancein a contract of insurance. Such contracts demand a very high degree ofprudence, good faith, disclosure and notice on the part of the insurer,being different facets of the doctrine of fairness. Though, a contract ofinsurance is a voluntary act on the part of the consumer, the obviousGintendment is to cover any contingency that might happen in future. Apremium is paid obviously for that purpose, as there is a legitimateexpectation of reimbursement when an act of God happens. Therefore,an insurer is expected to keep that objective in mind, and that too fromthe point of view of the consumer, to cover the risk, as against a plausibleHrepudiation.

Exclusion Clause

11. An exclusion clause in a contract of insurance has to beinterpreted differently. Not only the onus but also the burden lies withthe insurer when reliance is made on such a clause. This is for thereason that insurance contracts are special contracts premised on thenotion of good faith. It is not a leverage or a safeguard for the insurer,but is meant to be pressed into service on a contingency, being a contractof speculation. An insurance contract by its very nature mandatesdisclosure of all material facts by both parties.

12. An exclusion clause has to be understood on the touch-stoneof the doctrine of reading down in the light of the underlining object andintendment of the contract. It can never be understood to mean to be inconflict with the main purpose for which the contract is entered. A party,who relies upon it, shall not be the one who committed an act of fraud,coercion or mis-representation, particularly when the contract along withthe exclusion clause is introduced by it. Such a clause has to be understoodon the prism of the main contract. The main contract once signed wouldeclipse the offending exclusion clause when it would otherwise beimpossible to execute it. A clause or a term is a limb, which has got noexistence outside, as such, it exists and vanishes along with the contract,having no independent life of its own. It has got no ability to destroy itsown creator, i.e. the main contract. When it is destructive to the maincontract, right at its inception, it has to be severed, being a consciousexclusion, though brought either inadvertently or consciously by the partywho introduced it. The doctrine of waiver, acquiescence, approbate andreprobate, and estoppel would certainly come into operation as consideredby this court in N. Murugesan v. Union of India (2022) 2 SCC 25.

13. On the aforesaid principle of law, particularly with respect tothe issues qua onus, burden and reading down, this Court in ShivramChandra Jagarnath Cold Storage v. New India Assurance Co. Ltd.(2022) 4 SCC 539 has held as follows,

“19. Another instance where exception clauses may beinterpreted to the benefit of the insured is when the exceptionclauses are too wide and not consistent with the main purpose orobject of the insurance policy. In B.V. Nagaraju v. OrientalInsurance Co. Ltd. (1996) 4 SCC 647, a two-Judge Bench ofthis Court read down an exception clause to serve the main purpose A

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of the policy. However, this Court clarified that the breach of theexception clause was not so fundamental in nature that wouldhave led to the repudiation of the insurance policy. In that case,the terms of the insurance policy allowed an insured vehicle tocarry six workmen, excluding the driver. When the vehicle metwith an accident, it was carrying nine persons apart from thedriver. The insured had moved a claim for repair of the vehicle,which was rejected by the insurer.

20. Allowing the claim, this Court held thus : (B.V. Nagarajucase (1996) 4 SCC 647] , SCC pp. 650-51, para 7)

“7. It is plain from the terms of the Insurance Policythat the insured vehicle was entitled to carry 6 workmen,excluding the driver. If those 6 workmen when travellingin the vehicle, are assumed not to have increased any riskfrom the point of view of the Insurance Company onoccurring of an accident, how could those added personsbe said to have contributed to the causing of it is the poser,keeping apart the load it was carrying. Here, it is nobody’scase that the driver of the insured vehicle was responsiblefor the accident. In fact, it was not disputed that theoncoming vehicle had collided head-on against the insuredvehicle, which resulted in the damage. Merely by lifting aperson or two, or even three, by the driver or the cleanerof the vehicle, without the knowledge of the owner, cannotbe said to be such a fundamental breach that the ownershould, in all events, be denied indemnification. The misuseof the vehicle was somewhat irregular though, but not sofundamental in nature so as to put an end to the contract,unless some factors existed which, by themselves, had goneto contribute to the causing of the accident. In the instantcase, however, we find no such contributory factor. InSkandia case [Skandia Insurance Co. Ltd. v. KokilabenChandravadan, (1987) 2 SCC 654] this Court paved theway towards reading down the contractual clause byobserving as follows : (SCC pp. 665-66, para 14)

‘14. … When the option is between opting for a viewwhich will relieve the distress and misery of the victims ofaccidents or their dependants on the one hand and the equally

plausible view which will reduce the profitability of the insurerin regard to the occupational hazard undertaken by him byway of business activity, there is hardly any choice. The Courtcannot but opt for the former view. Even if one were to makea strictly doctrinaire approach, the very same conclusion wouldemerge in obeisance to the doctrine of “reading down” theexclusion clause in the light of the “main purpose” of theprovision so that the “exclusion clause” does not cross swordswith the “main purpose” highlighted earlier. The effort mustbe to harmonise the two instead of allowing the exclusion clauseto snipe successfully at the main purpose. The theory whichneeds no support is supported by Carter’s “Breach of Contract”vide para 251. To quote:

“Notwithstanding the general ability of contracting partiesto agree to exclusion clauses which operate to define obligationsthere exists a rule, usually referred to as the “main purposerule”, which may limit the application of wide exclusion clausesdefining a promisor’s contractual obligations. For example, inGlynn v. Margetson & Co. [1893 AC 351 (HL)] , AC at p.357, Lord Halsbury, L.C. stated : (AC p. 357)

‘… It seems to me that in construing this document,which is a contract of carriage between the parties, one mustin the first instance look at the whole instrument and not at onepart of it only. Looking at the whole instrument, and seeingwhat one must regard … as its main purpose, one must rejectwords, indeed whole provisions, if they are inconsistent withwhat one assumes to be the main purpose of the contract.’

Although this rule played a role in the development ofthe doctrine of fundamental breach, the continued validity ofthe rule was acknowledged when the doctrine was rejectedby the House of Lords in Suisse Atlantique Societe d’Armement Maritime S.A. v. N.V. Rotterdamsche KolenCentrale (1967) 1 AC 361 : (1966) 2 WLR 944 (HL)] .Accordingly, wide exclusion clauses will be read down to theextent to which they are inconsistent with the main purpose, orobject of the contract.”

(emphasis in original and supplied)”

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ADuty of Disclosure, Good Faith and Notice

14. The principles governing disclosure, good faith and notice arefounded on the common law principle of fairness. These principles aremeant to be applied with more rigour in standard form contracts such asinsurance contracts. Such an application is warranted much more whenBwe deal with an exclusion clause. A very high standard of good faith,disclosure and due compliance of notice is required on the part of theinsurer, keeping in view the unique nature of an insurance contract.

15. An act of good faith on the part of the insurer starts from thetime of its intention to execute the contract. A disclosure should be aCnorm and what constitutes a material fact requires a liberal interpretation.It is only when an insurer is not intending to act on an exclusion clause,the aforesaid principles may not require a strict compliance. The threeelements which we have discussed are interconnected and overlapping.It is the foremost duty of the insurer to give effect to a due disclosureand notice in its true letter and spirit. When an exclusion clause isDintroduced making the contract unenforceable on the date on which it isexecuted, much to the knowledge of the insurer, non-disclosure and afailure to furnish a copy of the said contract by following the procedurerequired by statute, would make the said clause redundant and non-existent.

E16. Lord Denning succinctly describes the fallacy in making aninadequate disclosure in George Mitchell (Chesterhall) Ltd v FinneyLock Seeds Ltd. (1983) Law Reports Q.B. 284), “None of you nowadays will remember the trouble we had- when I was called to the Bar - with exemption clauses. TheyFwere printed in small print on the back of tickets and order formsand invoices. They were contained in catalogues or timetables.They were held to be binding on any person who took them withoutobjection. No one ever did object. He never read them or knewwhat was in them. No matter how unreasonable they were, hewas bound. All this was done in the name of “freedom of contract.”GBut the freedom was all on the side of the big concern which hadthe use of the printing press. No freedom for the little man whotook the ticket or order form or invoice. The big concern said,“Take it or leave it.” The little man had no option but to take it.The big concern could and did exempt itself from liability in its H

own interest without regard to the little man. It got away with ittime after time. When the courts said to the big concern, “Youmust put it in clear words,” the big concern had no hesitation indoing so. It knew well that the little man would never read theexemption clauses or understand them.

It was a bleak winter for our law of contract……”

17. In a recent judgment, this Court in Manmohan Nanda v.United Insurance (2022) 4 SCC 582, summarises the duty of an insurerand an insured to disclose any material facts, “Uberrimae fidei

31. It is observed that insurance contracts are specialcontracts based on the general principles of full disclosure inasmuchas a person seeking insurance is bound to disclose all materialfacts relating to the risk involved. Law demands a higher standardof good faith in matters of insurance contracts which is expressedin the legal maxim uberrimae fidei.

32. MacGillivray on insurance law 13th Ed. has summarisedthe duty of an insured to disclose as under:

“...the assured must disclose to the insurer all factsmaterial to an insurer’s appraisal of the risk which are knownor deemed to be known by the assured but neither known nordeemed to be known by the insurer. Breach of this duty by theassured entitles the insurer to avoid the contract of insuranceso long as he can show that the non-disclosure induced themaking of the contract on the relevant terms.

33 . Lord Mansfield in Carter v. Boehm (1766) 3 Burr 1905 hassummarised the principles necessitating disclosure by the assuredin the following words: (E.R. p.1164)

“Insurance is a contract of speculation.

The special facts upon which the contingent chance is tobe computed lie most commonly in the knowledge of the assuredonly; the underwriter trusts to his representation, and proceedsupon confidence that he does not keep back any circumstance inhis knowledge to mislead the underwriter into a belief that thecircumstance does not exist,….

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The keeping back such circumstance is a fraud, andtherefore the policy is void. Although the suppression should happenthrough mistake, without any fraudulent intention, yet still the under-writer is deceived and the policy is void; because the risk run isreally different from the risk understood and intended to be run atthe time of the agreement.

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The policy would be equally void against the under-writerif he concealed;...

Good faith forbids either party, by concealing what heprivately knows, to draw the other into a bargain from his ignoranceof the fact, and his believing the contrary”.

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The aforesaid principles would apply having regard to the natureof policy under consideration, as what is necessary to be disclosedare “material facts” which phrase is not definable as such, as thesame would depend upon the nature and extent of coverage ofrisk under a particular type of policy. In simple terms, it could beunderstood that any fact which has a bearing on the veryfoundation of the contract of insurance and the risk to be coveredunder the policy would be a “material fact”.

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E35. Just as the insured has a duty to disclose all material facts, theinsurer must also inform the insured about the terms and conditionsof the policy that is going to be issued to him and must strictlyconform to the statements in the proposal form or prospectus, orthose made through his agents. Thus, the principle of utmost goodFfaith imposes meaningful reciprocal duties owed by the insured tothe insurer and vice versa. This inherent duty of disclosure was acommon law duty of good faith originally founded in equity buthas later been statutorily recognised as noted above. It is alsoopen to the parties entering into a contract to extend the duty orrestrict it by the terms of the contract.”

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18. On the principle of acting in good faith, it is held by this Courtin United India Insurance Co. Ltd. v. M.K.J. Corporation (1996)6 SCC 428, that it is the primary duty of the parties to a contract to do so, “(6) It is a fundamental principle of Insurance law thatutmost good faith must be observed by the contracting parties.

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Good faith forbids either party from concealing (non-disclosure)what he privately knows, to draw the other into a bargain, fromhis ignorance of that fact and his believing the contrary. Just asthe insured has a duty to disclose, “similarly, it is the duty of theinsurers and their agents to disclose all material facts within theirknowledge, since obligation of good faith applies to them equallywith the assured.”

(7) The duty of good faith is of a continuing nature. Afterthe completion of the contract, no material alteration can be madein its terms except by mutual consent. The materiality of a fact isjudged by the circumstances existing at the time when the contractis concluded…..”

19. A similar view is taken in Modern Insulators Ltd. v. OrientalInsurance Co. Ltd. (2000) 2 SCC 734, “(8) It is the fundamental principle of insurance law thatutmost good faith must be observed by the contracting partiesand good faith forbids either party from non-disclosure of the factswhich the parties know. The insured has a duty to disclose andsimilarly it is the duty of the insurance company and its agents todisclose all material facts in their knowledge since the obligationof good faith applies to both equally.”

20. We have already quoted with profit the classical passage ofLord Denning in George Mitchell (supra) on the degree of notice.Such a degree of notice mandates a party relying upon the exclusionclause to bring it to the knowledge of the other side, any failure to do sowould non-suit the said party from placing reliance upon it, as held inBharat Watch Company v. National Insurance Co. Ltd. 2019 (6)SCC 212, “7. The basic issue which has been canvassed on behalf ofthe appellant before this Court is that the conditions of exclusionunder the policy document were not handed over to the appellantby the insurer and in the absence of the appellant being madeaware of the terms of the exclusion, it is not open to the insurer torely upon the exclusionary clauses. Hence, it was urged that thedecision in United India Insurance Co. Ltd. v. Harchand RaiChandan Lal, (2004) 8 SCC 644, will have no application sincethere was no dispute in that case that the policy document wasissued to the insured.

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8. This submission is sought to be answered by the learnedcounsel appearing on behalf of the insurer by adverting to the factthat SCDRC construed the terms of the exclusion. SCDRC,however, did not notice the decision of this Court, and hence,NCDRC was (it was urged) justified in correcting the error havingregard to the law laid down by this Court. The learned counselurged that the appellant has been insuring its goods for nearly tenyears and it is improbable that the appellant was not aware of theexclusion.

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9. We find from the judgment of the District Forum that itwas the specific contention of the appellant that the exclusionaryconditions in the policy document had not been communicated bythe insurer as a result of which the terms and conditions of theexclusion were never communicated. The fact that there was acontract of insurance is not in dispute and has never been in dispute.The only issue is whether the exclusionary conditions werecommunicated to the appellant. The District Forum came to aspecific finding of ÿþfact that the insurer did not furnish the termsand conditions of the exclusion and special conditions to theappellant and hence, they were not binding. When the casetravelled to SCDRC, there was a finding of fact again that theconditions of exclusion were not supplied to the complainant.

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10. Having held this, SCDRC also came to the conclusionthat the exclusion would in any event not be attracted. The findingof SCDRC in regard to the interpretation of such an exclusionaryclause is evidently contrary to the law laid down by this Court inHarchand Rai (supra) However, the relevance of that interpretationFwould have arisen provided the conditions of exclusion wereprovided to the insured. NCDRC missed the concurrent findingsof both the District Forum and SCDRC that the terms of exclusionwere not made known to the insured. If those conditions were notmade known to the insured, as is the concurrent finding, thereGwas no occasion for NCDRC to render a decision on the effectof such an exclusion.”

21. On a discussion of the aforesaid principle, we would concludethat there is an onerous responsibility on the part of the insurer whiledealing with an exclusion clause. We may only add that the insurer isHstatutorily mandated as per Clause 3(ii) of the Insurance Regulatory and

Development Authority (Protection of Policy Holder’s Interests,Regulation 2002) Act dated 16.10.2002 (hereinafter referred to as IRDARegulation, 2002) to the effect that the insurer and his agent are dutybound to provide all material information in respect of a policy to theinsured to enable him to decide on the best cover that would be in hisinterest. Further, sub-clause (iv) of Clause 3 mandates that if proposalform is not filled by the insured, a certificate has to be incorporated atthe end of the said form that all the contents of the form and documentshave been fully explained to the insured and made him to understand.Similarly, Clause 4 enjoins a duty upon the insurer to furnish a copy ofthe proposal form within thirty days of the acceptance, free of charge.Any non-compliance, obviously would lead to the irresistible conclusionthat the offending clause, be it an exclusion clause, cannot be pressedinto service by the insurer against the insured as he may not be inknowhow of the same.

Doctrine of Blue Pencil

22. In such a situation, the doctrine of “blue pencil” which strikesoff the offending clause being void ab initio, has to be pressed intoservice. The said clause being repugnant to the main contract, and thusdestroying it without even a need for adjudication, certainly has to beeschewed by the Court. The very existence of such a clause havingfound to be totally illegal and detrimental to the execution of the maincontract along with its objective, requires an effacement in the form ofdeclaration of its non-existence, warranting a decision by the Courtaccordingly. The aforesaid principle evolved by the English and AmericanCourts has been duly taken note of by this Court in Beed District CentralCoop. Bank Ltd. v. State of Maharashtra, (2006) 8 SCC 514, “10. The “doctrine of blue pencil” was evolved by theEnglish and American courts. In Halsbury’s Laws of England,(4th Edn., Vol. 9), p. 297, para 430, it is stated:

“430. Severance of illegal and void provisions.—Acontract will rarely be totally illegal or void and certain parts ofit may be entirely lawful in themselves. The question thereforearises whether the illegal or void parts may be separated or‘severed’ from the contract and the rest of the contractenforced without them. Nearly all the cases arise in the contextof restraint of trade, but the following principles are applicableto contracts in general.”

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11. In P. Ramanatha Aiyar’s Advanced Law Lexicon, 3rdEdn. 2005, Vol. 1, pp. 553-54, it is stated:

“Blue pencil doctrine (test).—A judicial standard fordeciding whether to invalidate the whole contract or only theoffending words. Under this standard, only the offending wordsare invalidated if it would be possible to delete them simply byrunning a blue pencil through them, as opposed to changing,adding, or rearranging words. (Black, 7th Edn., 1999)

This doctrine holds that if courts can render anunreasonable restraint reasonable by scratching out theoffensive portions of the covenant, they should do so and thenenforce the remainder. Traditionally, the doctrine is applicableonly if the covenant in question is applicable, so that theunreasonable portions may be separated. E.P.I. of Cleveland,Inc. v. Basler [12 Ohio App 2d 16 : 230 NE 2d 552, 556].

Blue pencil rule/test.—Legal theory that permits a judgeto limit unreasonable aspects of a covenant not to compete.

Severance of contract; ‘severance can be effected whenthe part severed can be removed by running a blue pencilthrough it without affording the remaining part’. Attwood v. Lamont [(1920) 3 KB 571 : 1920 All ER Rep 55 (CA)] .(Banking)

A rule in contracts a court may strike parts of a covenantnot to compete in order to make the covenant reasonable.(Merriam Webster)

Phrase referring to severance (q.v.) of contract.‘Severance can be effected when the part severed can beremoved by running a blue pencil through it’ without affordingthe remaining part. Attwood v. Lamont [(1920) 3 KB 571 : 1920All ER Rep 55 (CA)] . (Banking)”

12. The matter has recently been considered by a learned Judgeof this Court while exercising his jurisdiction under sub-section(6) of Section 11 of the Arbitration and Conciliation Act, 1996in Shin Satellite Public Co. Ltd. v. Jain Studios Ltd. [(2006) 2SCC 628]”

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The Indian Contract Act, 1872

“2.Interpretation-clause.- In this Act the following wordsand expressions are used in the following senses, unless a contraryintention appears from the context:- xxxxxxxxx B

(i) An agreement which is enforceable by law at the optionof one or more of the parties thereto, but not at the optionof the other or others, is a voidable contract; xxxxxxxxx C

10. What agreements are contracts.- All agreementsare contracts if they are made by the free consent of partiescompetent to contract, for a lawful consideration and with a lawfulobject, and are not hereby expressly declared to be void.

Nothing herein contained shall affect any law in force inDIndia, and not hereby expressly repealed, by which any contractis required to be made in writing or in the presence of witnesses,or any law relating to the registration of documents.

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17. ‘Fraud’ defined.- ‘Fraud’ means and includes any ofthe following acts committed by a party to a contract, or with hisconnivance, or by his agent, with intent to deceive another partythereto or his agent, or to induce him to enter into the contract:- E

(1) the suggestion, as a fact, of that which is not true, by onewho does not believe it to be true; F

(2) the active concealment of a fact by one having knowledgebelief of the fact:

(3) a promise made without any intention of performing it;

(4) any other act fitted to deceive;

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(5) any such act or omission as the law specially declares to befraudulent.

Explanation.-Mere silence as to facts likely to affect thewillingness of a person to enter into a contract is not fraud, unlessthe circumstances of the case are such that, regard being had to H

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them, it is the duty of the person keeping silence to speak, orunless his silence, is, in itself, equivalent to speech.

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18. ”Misrepresentation” defined.- “Misrepresentation”means and includes-

(1) the positive assertion, in a manner not warranted by theinformation of the person making it, of that which is nottrue, though he believes it to be true’

(2) any breach of duty which, without an intent to deceive,gains an advantage of the person committing it, or anyone claiming under him, by misleading another to hisprejudice, or to the prejudice of any one claiming underhim;

(3) causing, however innocently, a party to an agreement,to make a mistake as to the substance of the thing whichis the subject of the agreement.

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19. Voidability of agreements without free consent.-When consent to an agreement is caused by coercion, [***] fraudor misrepresentation, the agreement is a contract voidable at theoption of the party whose consent was so caused.

A party to contract, whose consent was caused by fraud ormisrepresentation, may, if he thinks fit, insist that the contractshall be performed, and that he shall be put in the position in whichhe would have been if the representations made had been true.

Exception.- If such consent was caused bymisrepresentation or by silence, fraudulent within the meaning ofsection 17, the contract, nevertheless, is not voidable, if the partywhose consent was so caused had the means of discovering thetruth with ordinary diligence.

Explanation.- A fraud or misrepresentation which did notcause the consent to a contract of the party on whom such fraudwas practised, or to whom such misrepresentation was made,does not render a contract voidable.

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(c) A fraudulently informs B that A’s estate is free fromincumbrance. B thereupon buys the estate. The estate is subjectto mortgage. B may either avoid the contract, or may insist on itsbeing carried out and mortgage-debt redeemed,”

23. Section 2(i) of the Indian Contract Act, 1872 (hereinafterreferred to as “the Contract Act”) defines a voidable contract. Thisdefinition clause extends the option to one side of the parties to thecontract to declare it as voidable.

24. Under Section 10 of the Contract Act, an agreement wouldpartake the character of a contract when consideration is lawful and soalso the objective. A void agreement cannot be enforced, not being acontract in the eyes of law. The words “fraud” and “mis-representation”are defined under Sections 17 and 18 of the Contract Act. These twoprovisions on a simple reading give a clear indication that they are ofvery wide import. No restrictive meaning can be given to them, as boththe words “means” and “includes” are consciously mentioned. Thecategories given are merely illustrative in nature. What constitutes anact of “fraud” or “mis-representation” is a question of fact.

25. Once an act of fraud, coercion or misrepresentation is proved,the agreement being a contract becomes voidable at the option of theparty against whom it was done. Option under Section 19 of the ContractAct not only facilitates such a party, but also curtails the other who isresponsible, from seeking to declare the contract as voidable. Thus, thedoor is shut for the said party who benefits from such an act in seekingto declare the contract as voidable.

26. The second part of Section 19 of the Contract Act extends afurther benefit to the aggrieved party to seek the performance of thecontract, notwithstanding, the fraud or misrepresentation against him.Therefore, an aggrieved party has the option to either declare the contractas voidable or insist upon its due performance. The provision has got alaudable objective behind it which is to provide adequate relief to theparty, who is aggrieved at the hands of the one who committed fraud,coercion or misrepresentation. The aforesaid position is made clear fromillustration (c) to Section 19 of the Contract Act, which provides for the A

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AB party either to avoid the contract or insist upon it being carried out. Italso debars the violator from deriving benefit from his wrong doing.

27. When a court of law is satisfied that a fraud, ormisrepresentation resulted in the execution of the contract through thesuppression of the existence of a mutually destructive clause facilitatinga window for the insurer to escape from the liability while drawing benefitfrom the consumer, the resultant relief will have to be granted.

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Consumer Protection Act, 1986:

“2. Definitions.- (1) In this Act, unless the context otherwiserequires,- C

(g) “deficiency” means any fault, imperfection, shortcomingor inadequacy in the quality, nature and manner of performancewhich is required to be maintained by or under any law for thetime being in force or has been undertaken to be performed bya person in pursuance of a contract or otherwise in relation toany service; D

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(r) “unfair trade practice” means a trade practice which, forthe purpose of promoting the sale, use or supply of any goodsor for the provision of any service, adopts any unfair methodor unfair or deceptive practice including any of the followingpractices, namely:—

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(1) the practice of making any statement, whether orallyor in writing or by visible representation which,—

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(iv) represents that the goods or services havesponsorship, approval, performance, characteristics,accessories, uses or benefits which such goods orservices do not have.

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(vi) makes a false or misleading representationconcerning the need for, or the usefulness of, any goodsor services.”

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3. Act not in derogation of any other law.— Theprovisions of this Act shall be in addition to and not in derogationof the provisions of any other law for the time being in force.

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14. Finding of the District Forum.—(1) If, after theproceeding conducted under section 13, the District Forum issatisfied that the goods complained against suffer from any of thedefects specified in the complaint or that any of the allegationscontained in the complaint about the services are proved, it shallissue an order to the opposite party directing him to do one ormore of the following things, namely:—

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(d) to pay such amount as may be awarded by it ascompensation to the consumer for any loss or injury sufferedby the consumer due to the negligence of the opposite party:

Provided that the District Forum shall have the powerto grant punitive damages in such circumstances as it deemsfit; xxx xxx xxx (f) to discontinue the unfair trade practice or the restrictivetrade practice or not to repeat them;

28. The consumer under the Consumer Protection Act, 1986(hereinafter referred to as “the 1986 Act”) is at an elevated place thanthe plaintiff in a suit. A dispute before the Consumer Commission is tobe seen primarily from the point of view of the consumer as against thecivil suit. It is only to avoid any possible bottleneck in granting the relief.The jurisdiction of the Commission has been clearly demarcated, beingin addition to any other laws in force as stipulated under Section 3 of the1986 Act. The Act being a self-contained one, requires to be strengthenedby the procedural laws, as the intention now is to facilitate a relief andnot to curtail it. The aforesaid view of ours is fortified by Regulation 26of the Consumer Protection Regulations, 2005 which cautions theCommission to avoid the cumbersome procedure contemplated underthe Code of Civil Procedure. Clearly, the object is to make the Commissionas consumer friendly as possible.

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A29. Having noted the provision governing unfair trade practice, itis rather crystal clear that it takes in its sweep all forms of unfair tradepractice. One cannot give a restrictive or narrow interpretation to thisprovision which starts from an invitation, preceded by an offer, followedby an acceptance, conduct, and execution of the contract. Court’s findingagainst one of the parties qua the existence of unfair trade practice hasBto be transformed into an adequate relief in favour of the other, particularlyin light of Section 14 of the 1986 Act. One has to keep in mind thelegislative intendment behind the Act. Once again, we reiterate thedefinition clause which gives adequate ammunition to the Court to declareany form of unfair trade practice as illegal while granting the appropriateCrelief.

Consumer Protection Act, 2019:

“2. Definitions. – In this Act, unless the context otherwiserequires,-

(46) “unfair contract” means a contract between a manufactureror trader or service provider on one hand, and a consumer on theother, having such terms which cause significant change in theErights of such consumer, including the following, namely:—

(i) requiring manifestly excessive security deposits tobe given by a consumer for the performance ofcontractual obligations; or

(ii) imposing any penalty on the consumer, for the breachFof contract thereof which is wholly disproportionateto the loss occurred due to such breach to the otherparty to the contract; or

(iii) refusing to accept early repayment of debts onpayment of applicable penalty; or G

(iv) entitling a party to the contract to terminate suchcontract unilaterally, without reasonable cause; or

(v) permitting or has the effect of permitting one partyto assign the contract to the detriment of the otherparty who is a consumer, without his consent; or H

(vi) imposing on the consumer any unreasonable charge,obligation or condition which puts such consumer todisadvantage;”

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(47) “unfair trade practice” means a trade practice which, for thepurpose of promoting the sale, use or supply of any goods or forthe provision of any service, adopts any unfair method or unfairor deceptive practice including any of the following practices,namely:—

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(i) making any statement, whether orally or in writing or byvisible representation including by means of electronicrecord, which—

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(a) falsely represents that the goods are of a particularstandard, quality, quantity, grade, composition, styleor model; (b)falsely represents that the services are of a particularstandard, quality or grade; D

(c) falsely represents any re-built, second-hand,renovated, reconditioned or old goods as new goods;

(d) represents that the goods or services havesponsorship, approval, performance, characteristics,Eaccessories, uses or benefits which such goods orservices do not have; (e)represents that the seller or the supplier has asponsorship or approval or affiliation which such selleror supplier does not have; F

(f) makes a false or misleading representationconcerning the need for, or the usefulness of, anygoods or services; (g)gives to the public any warranty or guarantee of theperformance, efficacy or length of life of a productGor of any goods that is not based on an adequate orproper test thereof:”

30. The definition clause under sub-section (46) of Section 2 ofthe Consumer Protection Act, 2019 (hereinafter referred to as “the 2019Act”) gives a very broad meaning of unfair contract. As in the other H

Aprovisions, it does not restrict itself to the few illustrative circumstancesmentioned under sub-clause (i) to (vi). Ultimately, it is for the StateCommission or the National Commission to declare a contract as unfaircontract.

31. Though, these two provisions are merely defining the terms,Bthey actually empower the Commission to go into the issue qua theunfair nature of the terms of a contract and also the trade practice.Once, the State Commission or the National Commission, as the casemay be, comes to the conclusion that the term of a contract is unfair,particularly by adopting an unfair trade practice, the aggrieved party hasto be extended the resultant relief. The above said view is furtherCstrengthened by Sections 47 and 49 of the 2019 Act.

Section 47 and 49

“(47) Jurisdiction of State Commission.- (1) Subject tothe other provisions of this Act, the State Commission shallDhave jurisdiction—

(a) to entertain—

(i) complaints where the value of the goods or servicespaid as consideration, exceeds rupees one crore, butdoes not exceed rupees ten crore:

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Provided that where the Central Governmentdeems it necessary so to do, it may prescribe suchother value, as it deems fit;

(ii) complaints against unfair contracts, where the valueof goods or services paid as consideration does notFexceed ten crore rupees;

(iii) appeals against the orders of any District Commissionwithin the State; and…

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G49. Procedure applicable to State Commission.-(1) Theprovisions relating to complaints under sections 35, 36,37, 38 and 39 shall, with such modifications as may be necessary,be applicable to the disposal of complaints by the StateCommission.

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(2) Without prejudice to the provisions of sub-section(1), the State Commission may also declare any terms ofcontract, which is unfair to any consumer, to be null and void.

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58. Jurisdiction of National Commission

(1) Subject to the other provisions of this Act, the NationalCommission shall have jurisdiction—

(a) to entertain—

(i) complaints where the value of the goods or servicespaid as consideration exceeds rupees ten crore: Providedthat where the Central Government deems it necessary soto do, it may prescribe such other value, as it deems fit;

(ii) complaints against unfair contracts, where the value ofgoods or services paid as consideration exceeds ten crorerupees;

(iii) appeals against the orders of any State Commission;

(iv) appeals against the orders of the Central Authority;and……”

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59. Procedure applicable to National Commission.- (1)

The provisions relating to complaints under sections 35, 36, 37,38 and 39 shall, with such modifications as may be considerednecessary, be applicable to the disposal of complaints by theNational Commission.

(2) Without prejudice to sub-section (1), the NationalCommission may also declare any terms of contract, which isunfair to any consumer to be null and void.”

32. Section 47 and 58 of the 2019 Act have been introduced tofacilitate the State Commission and the National Commission to exercisejurisdiction over a contract which is unfair. As stated, the power is notonly with respect to identifying a contract as unfair or not, but also togrant the consequential relief.

33. Under sub-section (2) of Section 49 and 59 of the 2019 Act,the State Commission and the National Commission, respectively, may

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Adeclare any terms of the contract being unfair to any consumer to benull and void. The principle governing the doctrine of civil remedy of acontract is well enshrined in this provision.

34. In these provisions, there exists ample power to declare anyterms of the contract as unfair by the State Commission and the NationalBCommission. The words “any terms of the contract” would empowerthe State Commission and the National Commission to exerciseunrestricted jurisdiction over any particular term of a contract, if in itsopinion, its introduction by the insurer has certain elements of unfairness.The consequence of the declaration of that term as unfair, would makethe contract active and executable to the benefit of the consumer.CTherefore, this provision takes care of a possible mischief by the insureras against the consumer.

35. We are conscious of the fact that the aforesaid provisionshave been introduced under the new 2019 Act. However, the intendmentof these provisions could be seen as implied even under the prior Act,Di.e. the Consumer Protection Act, 1986. This Court has traced thejurisdiction of the Commission under Section 14 of the ConsumerProtection Act, 1986 Act in IREO Grace Realtech (P) Ltd. v.Abhishek Khanna, (2021) 3 SCC 241, “33. Section 14 of the 1986 Act empowers the Consumer Fora toEredress the deficiency of service by issuing directions to the Builder,and compensate the consumer for the loss or injury caused by theopposite party, or discontinue the unfair or restrictive tradepractices.

34. We are of the view that the incorporation of such one-sidedFand unreasonable clauses in the apartment buyer’s Agreementconstitutes an unfair trade practice under Section 2(1)(r) of theConsumer Protection Act. Even under the 1986 Act, the powersof the consumer fora were in no manner constrained to declare acontractual term as unfair or one-sided as an incident of the powerGto discontinue unfair or restrictive trade practices. An “unfaircontract” has been defined under the 2019 Act, and powers havebeen conferred on the State Consumer Fora and the NationalCommission to declare contractual terms which are unfair, as nulland void. This is a statutory recognition of a power which wasimplicit under the 1986 Act.”H

ANALYSIS

ANALYSIS

36. Both the forums have held concurrently that respondent No.1 was conscious of the fact that the contract was entered into for insuringa shop situated in the basement. The aforesaid position is not only afactual one but also accepted by the respondents as no challenge hasbeen laid against the impugned order. Similarly, there was no specificdenial on the non-compliance of adequate notice. The NationalCommission has not given any finding on this aspect, though it was dealtwith in extenso by the State Commission. On a reading of Section 21(A)of the Consumer Protection Act, 1986, it is clear that it is not akin toSection 96 of the Code of Civil Procedure, 1908. Even otherwise, theimpugned order has not considered all the relevant materials which wereduly taken note of by the State Commission.

37. Once it is proved that there is a deficiency in service and thatrespondent No. 1 knowingly entered into a contract, notwithstanding theexclusion clause, the consequence would flow out of it. We have alreadydiscussed the scope and ambit of the provisions under the Indian ContractAct, 1872. Even as per the common law principle of acquiescence andestoppel, respondent No. 1 cannot be allowed to take advantage of itsown wrong, if any. It is a conscious waiver of the exclusion clause byrespondent No. 1.

38. Under the impugned order, we have already taken note of anddiscussed, the findings of the State Commission, which are indeedapproved by the National Commission. These findings are sufficientenough to come to the conclusion that the terms of the contract areunfair, particularly the exclusion clause, and that respondent No. 1 hasindulged in unfair trade practice. In such view of the matter, the decisionof the National Commission cannot be sustained as the appellant cannotbe non-suitedonly on the ground of mere deficiency in service withouttaking note of the fact that it is the duty of the Forum to grant theconsequential relief by exercising the power under Section 14(d) and14(f) of the Consumer Protection Act, 1986 which mandates the paymentof adequate compensation by way of an award. The said provision makesit consequential in granting adequate compensation once it findsdeficiency, the existence of unfair terms in the contract and unfair tradepractice on the part of the other party. In other words, a party is entitledfor the relief which the law provides.

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A39. Non-compliance of Clauses (3) and (4) of the IRDA Regulation,2002 preceded by unilateral inclusion, and thereafter followed by theexecution of the contract, receiving benefits, and repudiation afterknowing that it was entered into for a basement, would certainly be anact of unfair trade practice. This view is fortified by the finding that theexclusion clause is an unfair term, going against the very object of theBcontract, making it otherwise un-executable from its inception.

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40. Therefore, we have no hesitation in setting aside the orderpassed by the National Commission. However, we are in agreementwith the submission made by the counsel appearing for the respondentsthat the State Commission without any basis granted a sum of Rs.2.5Clakhs towards harassment and mental agony. We are of the view that nocase for awarding amount under that head has been made out as therespondents merely took a legal stand.

41. In light of the aforesaid, the order impugned passed by theNational Commission in F.A. No. 275 of 2016 stands set aside except toDthe extent of declining a sum of Rs.2.5 lakhs towards harassment andmental agony. The appeal stands allowed in part.

42. Before we part with this case, we would like to extend a wordof caution to all the insurance companies on the mandatory complianceof Clause (3) and (4) of the IRDA Regulation, 2002. Any non-complianceEon the part of the insurance companies would take away their right toplead repudiation of contract by placing reliance upon any of the termsand conditions included thereunder.

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Ankit Gyan

(Assisted by : Rahul Rathi, LCRA)

Appeal partly allowed.

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