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

Citation: [2022] 9 S.C.R. 1031 · Decided: 09-11-2022 · Supreme Court of India · Bench: SURYA KANT · Disposal: Case Partly allowed

Cited by 4 judgment(s) · cites 2 · see the full citation network in Lexace

Judgment (excerpt)

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   [2022] 9 S.C.R. 1031
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 Protection
Act, 2019 – ss. 2(46), 2(47), 47, 49 & 59 – Insurance Regulatory
and Development Authority (Protection of Policy Holders Interests)
Regulations, 2002 – Insurance Claim – Repudiation of – Exclusion
Clause – Appellant secured a Standard Fire and Special Perils policy
from the respondent on 28.07.2012 – Policy was effective from
28.07.2012 to 27.07.2013 and it was meant to cover a shop situated
in the basement of the building – However, the exclusion clause of
the contract specified that it did not cover the basement – Shop met
with a fire accident for which the appellant raised a claim – Claim
was repudiated by the respondent, taking umbrage under the
exclusion clause – On challenge, State Consumer held that there
was no adequate disclosure and the insurer was deficient in service
and indulged in unfair trade practice – National Commission
overturned the order passed by the State Commission by placing
reliance upon the exclusion clause – Whether an exclusion clause
destroying the very contract knowingly entered, can be permitted
to be used by a party who introduced it, becomes a beneficiary and
then to avoid its liability–Held: An exclusion clause has to be
understood on the touch-stone of the doctrine of reading down in
the light of the underlining object and intendment of the contract –
It can never be understood to mean to be in conflict with the main
purpose for which the contract is entered – It is the foremost duty of
the insurer to give effect to a due disclosure and notice in its true
letter and spirit – Once, the State Commission or the National
Commission, as the case may be, comes to the conclusion that the
term of a contract is unfair, particularly by adopting an unfair trade
practice, the aggrieved party has to be extended the resultant relief
– Once it is proved that there is a deficiency in service and that
respondent knowingly entered into a contract, notwithstanding the
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SUPREME COURT REPORTS
[2022] 9 S.C.R.
exclusion clause, the consequence would flow out of it – As per the
common law principle of acquiescence and estoppel, respondent
cannot be allowed to take advantage of its own wrong.
Contract Act, 1872 – ss. 2, 10, 17, 18 & 19 – Adhesion
contracts/Standard Form of Contract – Insurance Contract – These
contracts are prepared by the insurer having a standard format
upon which a consumer is made to sign – The insurer who, being
the dominant party dictates its own terms, leaving it upon the
consumer, either to take it or leave it - Such contracts are obviously
one sided, grossly in favour of the insurer due to the weak bargaining
power of the consumer.
Doctrine of Blue Pencil – Discussed.
Partly allowing the appeal, the Court
HELD: 1.1 Adhesion contracts are otherwise called
Standard-Form Contracts. Contracts of Insurance are one such
category of contracts. These contracts are prepared by the insurer
having a standard format upon which a consumer is made to sign.
He has very little option or choice to negotiate the terms of the
contract, except to sign on the dotted lines. The insurer who,
being the dominant party dictates its own terms, leaving it upon
the consumer, either to take it or leave it. Such contracts are
obviously one sided, grossly in favour of the insurer due to the
weak bargaining power of the consumer. The concept of freedom
of contract loses some significance in a contract of insurance.
Such contracts demand a very high degree of prudence, good
faith, disclosure and notice on the part of the insurer, being
different facets of the doctrine of fairness. Though, a contract of
insurance is a voluntary act on the part of the consumer, the
obvious intendment is to cover any contingency that might happen
in future. A premium is paid obviously for that purpose, as there
is a legitimate expectation of reimbursement when an act of God
happens. Therefore, an insurer is expected to keep that objective
in mind, and that too from the point of view of the consumer, to
cover 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 be
interpreted differently. Not only the onus 

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