IFFCO-TOKIO opting out of insurance contract | High Court dismisses Govt’s plea for intervention

Srinagar, Feb 6: The High Court of J&K and Ladakh has dismissed the government’s plea, seeking the court’s intervention to restrain an Insurance Company  IFFCO-TOKIO from opting out of the contract for implementation of Ayushman Bharat- Pradhan Mantri Jan Arogya Yojana and Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana - SEHAT in Jammu and Kashmir beyond March 14 this year.

As per the petition filed by the Chief Executive Officer, State Health Agency (SHA) Directorate of Health Services Kashmir against IFFCO-TOKIO, General Insurance Company Limited, through its Managing Director, the insurance contract between the two was executed for a maximum period of three years, commencing from March 10, 2022.

However, the company, in response to a request by SHA, informed the agency that it decided not to accord their consent for the renewal of the contract beyond March 14, 2024.

“The law is well settled that whether the termination or exit notice met the requirement of the contract or not and thus, whether the termination or exit was valid or not, would be questions which are required to be examined and adjudicated upon by the arbitrator,” a bench of Justice Wasim Sadiq Nargal said while rejecting government’s petition under Section 9 of the Arbitration and Conciliation Act, 1996 seeking interim relief.

“The argument of the Senior AAG that the exit notice served by the respondent company was arbitrary and without assigning any reason does not hold ground in the instant petition which has been preferred under Section 9 of the Arbitration and Conciliation Act, 1996 seeking interim relief,” the court said and dismissed the petition in limini.

However, the court made it clear that the arbitral tribunal which was yet to be constituted, should not be bound by any of the observations made in the order.

“The arbitral tribunal should deal with the issues raised before it, even if they are the same as raised before this court, independently, without, being influenced by any of observation made in this order or the findings recorded by this court, prima facie,” the court said.

It said that a holistic reading of clause 9.1 of the contract agreement, prima facie, reveals that the contract period was for a maximum of three years, which was subject to renewal every 12 months from the start date of the policy.

“Therefore, upon a bare reading of clause 9.1 (c) which starts with a non-obstante clause, the renewal of the insurance contract is subject to mutual agreement between both the parties,” the court said.

It said that this reflects that the insurance contract was determinable at the behest of one of the parties without any conditions attached.

“As such, the insurance contract is not specifically enforceable under Section 14 of the Specific Relief Act,” the court said. “Any contract which provides for renewal based on mutual consent of the parties ought to be determinable in nature.”

It said that this also had bearing on injunctions which might be sought by the parties as Section 41 (e) of the Specific Relief Act, 1963, provides that an injunction cannot be granted to prevent the breach of a contract, the performance of which would not be specifically enforced.

The court underlined that the “insurance agreement” was determinable given the discussion.

It said thus, in terms of Section 14 (d) of the Specific Relief Act, 1963, no injunction could be granted to prevent a breach of the contract, the performance of which cannot be enforced.

The court noted that the company had already terminated the insurance agreement vide a termination letter dated November 1, 2023, read with a letter dated November 16, 2023.

“Thus, where the petitioner is statutorily barred from seeking specific performance of the insurance contract, the petitioner cannot be held entitled to claim interim relief under Section 9 of the act,” the court said relying on the Supreme Court’s decision in the case of Bharat Catering Corporation versus India Railway Catering and Tourism Corporation and others.

The court held that the law was settled that by way of a Section 9 petition under the act, a party could not seek specific performance of the contract.

“Since the insurance contract stands terminated, this court cannot intervene under Section 9 of the Arbitration and Conciliation Act to direct specific performance of the contract,” it said.

According to the petition, the CEO, SHA, J&K vide communication dated November 3, 2023, addressed to the CEO and MD of the company, requested them to continue as insurers in terms of the Memorandum of Understanding (MOU) signed between the parties.

In response, the General Manager of the Company informed the CEO vide communication on November 16, 2023, that they had decided not to accord their consent for the renewal of the contract beyond March 14, 2024.

Subsequently, there were multiple correspondence exchanges between the SHA and the company, whereby, the SHA requested the company to honour the terms and conditions of the contract.

The company replied stating that they were merely invoking clause 9.1 (c) of the contract agreement and in no way were in breach of the terms of the contract.

The SHA, J&K, then invoked clause 41.3 of the contract agreement vide communication on January 19 this year and served notice to the company for referring the matter to the arbitral tribunal, requesting them to nominate an arbitrator on their behalf.

Both parties among others had agreed that the board of arbitrators should consist of 3 arbitrators, with each party appointing one arbitrator and the third arbitrator being appointed by the two arbitrators so appointed.

“If the parties cannot agree on the appointment of the arbitrator within a month from the notification by one party to the other of the existence of such dispute, then the arbitrator should be appointed by the High Court of Jammu and Kashmir,” it said.

Feeling aggrieved by the same, the government has filed the present petition under Section 9 of the Arbitration and Conciliation Act seeking interim protection from the court.