The U.P. Motor Transport Association, Kanpur Vs. the Chairman, I.R.D.A. and Others - Court Judgment

Heard Sri S.P. Sharma and Sri L.M. Singh, learned counsel for the petitioner and Sri Rakesh Bahadur, learned counsel appearing for the respondent nos. 1, 2, 3 and 7.

This writ petition has been filed by the U.P. Motor Transport Association which is a registered society under the Societies Registration Act, 1860. Petitioner's case is that petitioner association represent/ventilate common grievances for protection of interest of members of the association. The motor vehicles used by the members of the petitioner association for transportation have been insured with the respondent Insurance Companies and they have been paying annual insurance premium towards damages claim and third party claim.

The petitioner by this writ petition has prayed for quashing the notification dated 15.4.2011 issued by Insurance Regulatory and Development Authority (hereinafter referred to as the Authority) exercising power vested in it under Section 14(2) of the Insurance Regulatory and Development Authority Act, 1999 (hereinafter referred to as the Act) by which rates of premium applicable to motor third party liability insurance has been notified with effect from 25.4.2011. The notification dated 15.4.2011 has been issued in supersession of earlier notification dated 23.1.2007.

The petitioner's case in the writ petition is that under Section 64UC of Insurance Act, 1938, the power to control and regulate rates in respect of any risk is vested only with respondent no. 2, i.e., the Tariff Advisory Committee. It is submitted that the jurisdiction being exclusively vested in the Tariff Advisory Committee, the notification issued by respondent no. 1-Authority is without jurisdiction. It is stated that Insurance Regulatory and Development Authority is only a ratifying authority and cannot assume or arrogate to itself the powers vested in the Tariff Advisory Committee so as to disseminate the Tariff Advisory Committee completely. It is further pleaded that on 12.3.2011 the authority appointed an actuary committee of Indian Motor third party insurance bill under the Insurance Act, 1938 to review the laws required for maintaining solvency ratio of the Insurance Companies and also the payment to be paid to the accident victims. It is stated that actuary committee was required to submit report by 30.6.2011 and without waiting for the same the authority has issued the impugned notification. The petitioner has also placed reliance on interim orders passed by Madras High Court, Karnataka High Court and Kerala High Court staying the notification dated 15.4.2011 which has been impugned in the present writ petition. The interim order passed by the Madras High Court in Writ Petition No. 10908 of 2011, Erode District Bus Owners Association Vs. Insurance Regulatory and Development Authority dated 27.4.2010 relied by the petitioner, which has been filed as Annexure No. 4 to the writ petition. Another interim order relied by petitioner's counsel is interim order dated 6.6.2011 passed by the Karnataka High Court in Writ Petition No. 19719 of 2011, The Federation of Karnataka State Lorry Owners and Agents Association Vs. The New India Insurance Company Limited and further interim order dated 10.5.2011 passed by the Kerala High Court in Writ Petition No. 12388 of 2011, Kerala State Private Bus Operators Federation and another Vs. Insurance Regulatory and Development Authority and others has been relied, which interim orders have been filed collectively as Annexure Nos. 6 and 7 to the writ petition.

Sri Rakesh Bahadur, learned counsel appearing for the respondents, at the very outset, submitted that the interim orders passed by the Madras and Karnataka High Courts, which have been relied by the petitioner, have come to an end. He submits that Kerala High Court and Madras High Court have finally dismissed the aforesaid writ petition by judgements and order dated 22.6.2011 and 14.6.2011 upholding the impugned notification dated 15.4.2011, hence, the very basis of the writ petition has come to an end.

Learned counsel for the petitioner replying the submission of the respondents submitted that petitioner does not rely any more on the interim orders of above High Courts filed as Annexure Nos. 4, 6 and 7 but he still presses the grounds as has been taken in the writ petition for challenging the notification dated 15.4.2011.

We have heard learned counsel for the parties and perused the record. To consolidate the law relating to business of insurance the Insurance Act, 1938 was enacted by the Insurance (Amendment) Act, 1968. The Insurance Act, 1938 was amended by adding part II and III in the Insurance Act, 1938. Section 64UC provided for power of the Insurance Advisory Committee to regulate rates, advantages etc.

Section 64UC (1)(2) and (3) are quoted below:-

“64UC. Power of the Advisory Committee to regulate rates, advantages, etc.- (1) The Advisory Committee may, from time to time and to the extent it deems expedient, control and regulate the rates, advantages, terms and conditions that may be offered by insurers in respect of any risk or of any class or category of risks, the rates, advantages, terms and conditions of which, in its opinion, it is proper to control and regulate, and any such rate, advantages, terms and conditions shall be binding on all insurers:

Provided that [the Authority may] permit any insurer to offer, during such period (being not more than two years but which may be extended by periods of not more than two years at a time) and subject to such conditions as may be specified by him, rates, advantages, terms or conditions different from those fixed by the Advisory Committee in respect of any particular category of risks, if he is satisfied that such insurer generally issues policies only to a restricted class of the public or under a restricted category of risks.

(2) In fixing, amending or modifying any rates, advantages, terms or conditions, relating to any risk, the Advisory Committee shall try to ensure, as far as possible, that there is no unfair discrimination between risks of essentially the same hazard, and also that consideration is given to past and prospective loss experience:

Provided that the Advisory Committee may, at its discretion, make suitable allowances for the degree of credibility to be assigned to the past experience, including allowances for random fluctuations and may also, at its discretion, make suitable allowances for future fluctuations and unforeseen future contingencies, including hazards of conflagration or catastrophe or both.

(3) Every decision of the 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], or if the [Authority] so orders in any case, from such earlier date as he may specify in the order.”

Another parliamentary enactment was made in the year 1999 namely the Insurance Regulatory and Development Authority Act, 1999 for establishment of authority to protect the interest of holders of insurance policy to regulate, promote and ensure orderly growth of the insurance industry and matter connected therewith and further to amend the Insurance Act, 1938. Insurance Regulatory and Development Authority was constituted under the 1999 Act and duties, powers and functions of the authority were enumerated in Section 14.

Section 14(1) and 14(2) (j) of the Insurance Regulatory and Development Authority Act, 1999 are quoted below:-

“14. 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 reinsurance business.

(2) With prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include,-

(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;”

Prior to impugned notification dated 15.4.2011,earlier rate revision was made by notification dated 4.12.2006. The earlier revision of rates were challenged before the Kerala High Court and Kerala High Court upheld the revisions, vide its judgement reported in AIR 2007 Kerala 208, All Kerala Bus Operators Organization and others Vs. Insurance Regulatory and Development Authority. Following was laid down in paragraph 5, 6 and 7 which are quoted below:-

“5. 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 insurers in respect of general insurance business not so controlled and regulated by the TAC under Section 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 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 under Section 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 of areas not covered by any TAC decision.

6. In the decision of the Apex Court in Joint Council Bus Syndicate v. Union of India (AIR 1992 SC 1616), having regard to the entire facts situation then prevailing, it was directed that those commuters which would be affected by upward revision of the insurance tariffs are entitled to at least a post-decisional hearing and the TAC was directed to afford such hearing. That decision as rendered when deciding a case of challenge to a TAC decision, on fixation of tariffs. Having regard to the ratio of the said decision. I have no doubt in my mind that the principles laid down by Their Lordships apply in equal force when the IRDA decides on the question of tariff. As already noticed, when the initial complaint of the petitioners was that there is a 100% upward revision of tariff rates, the respondents are on record with the uncontroverted statement that the said decision on the tariff rates was again reconsidered and the rates have been slashed down whereby, as of now, the rates would be only 18% above the rates which prevailed earlier. Going by the counter affidavit, it is also explicitly clear that the IRDA had extended opportunity of hearing and had, in fact, heard different organizations of persons involved in the different sectors who would have to pay higher insurance premium on the basis of the upward revision of the tariff rates. On facts, it is a case where IRDA has clearly demonstrated relying on its counter-affidavit that the tariff fixed, as of now, has been done after due application of mind and after affording sufficient opportunity of hearing. I also find in support of the said findings of facts, in the order dated 12.1.2007 in M.P. (MD). Nos. 2 and 3 of 2006 in W.P. (MD).No. 11699/2006 of the Madurai Bench of the Madras High Court, considering the very same situation. 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 decisions, 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.

7. 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 on 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.

For the reasons aforesaid, these writ petitions fail. The same are accordingly dismissed. No costs.”

The submissions which have been pressed by the learned counsel for the petitioner is that the respondent no. 1, i.e., authority has no jurisdiction of rate revision and the authority is vested only with the committee to revise rate. Section 14(2)(i), as quoted above, empowers the authority to control and regulate the rates in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under Section 64U. It is not the case of the petitioner that Tariff Advisory Committee has issued any order prescribing rates. The provision of Insurance Act 1938 and the Insurance Regulatory and Development Authority Act 1999 have to be to given effect together and when the committee has not issued any orders covering the field which has now been occupied by notification dated 15.4.2011, the authority has full jurisdiction to issue notification.

This very question has been considered by Madras High Court in Erode District Bus Owners Association (supra) and repelling this contention following was laid down in paragraph 24:-

“24. 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 under Section 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 under Section 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 judgement of the Supreme Court in Jt. Council of Bus Syndicate's case (cited supra).”

Thus, the submission and ground in the writ petition that the respondent no. 1 has no jurisdiction to issue notification has no substance and cannot be accepted. The submission of the petitioner that authority is only ratifying authority and cannot assume or arrogate to itself the powers vested in authority is also unfounded. The authority has full jurisdiction to prescribe rates when the field is unoccupied. Although it is true that under Section 64UC, the decision of Advisory committee to regulate and fix rate becomes effective only when the same is ratified by the authority. But the question of ratification arises only when it is regulated by the Advisory committee. In the event, there is any regulation or prescription by Advisory Committee, Section 14(2)(i) come into play. The field being open for authority to prescribe rates, there is no question of assuming or arrogating jurisdiction by authority and the submission is misconceived.

One of the submission raised in the writ petition is that an actuary committee has been appointed by authority which was to submit a report dated 30.6.2011 and without waiting for the said period, the notification dated 15.4.2011 has been issued. Necessary pleading in support of the above submission has been made in paragraph 17 of the writ petition, which is to the following effect:-

“17. That in the present case, when the authority though having accepted the report of the K.P. Sharma Committee was duly constituted by the IRDA by order dated 17.12.2010 that further on 12.3.2011 had appointed an actuary committee of the Indian Motor Third Party Insurance Pool under the Insurance Act, 1938 to review the laws required for maintaining solvency ratio of the Insurance Companies and also the payments to be paid to the accidents victims. When the IRDA itself by the said order dated 12.3.2011 wanted the actuary committee to submit its report before 30.6.2011 without waiting for the same before revising and increasing the existing rates, the IRDA had arbitrarily issued the impugned notification reviving the rates for the Third Party Liability cover even before such actuary could submit its report for the purpose for which it was appointed.”

From the aforesaid pleading, it is clear that the actuary committee has not been appointed specifically for the subject which has been covered by the notification dated 15.4.2011. The terms of the reference of the actuary committee has also not been brought on record. Thus, there was no error in issuance of the notification dated 15.4.2011 by the respondent no. 1 without for waiting the report of the actuary committee.

As noticed above the Madras High Court in its judgement dated 14.6.2011 in Erode Bus Owners Association (supra) has already upheld the notification dismissing the writ petition. Similarly, Kerala High Court has also dismissed the writ petition on 22.6.2011 being Writ Petition No. 13288 of 2011, vide its judgement and order dated 22.6.2011, upholding the notification dated 15.4.2011. The judgement of Madras High Court in Erode District Bus Owner Association (supra) and the judgement of the Kerala High Court in Kerala State Private Bus Operators Federation and another (supra) fully support the contentions raised by the counsel for the respondents.

In view of the foregoing discussions, we do not find any good ground to interfere with the notification dated 15.4.2011. The writ petition lacks merits and is dismissed accordingly.