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17.3 The Mediclaim Insurance Scheme, which was framed by the GIC, was a scheme approved by the Central Government. It was approved by the Central Government. It was not a scheme floated by some private party. This is evident from Circular No. 464, dated 18th July, 1986 issued by the CBDT under Section 119 of the Income-tax Act, 1961, in which, there is a reference to the Budget Speech in the year 1986-87 of the Finance Minister in which a proposal to provide relief to self-employed persons and salary earners other than whose medical needs were taken care of by the employers in respect of medical expenses incurred by them by allowing a deduction out of their total income, subject to limits, for any premium on medical insurance policies taken by them with the General Insurance Corporation of India, was announced. Pursuant to that, a new clause (ib) in sub-section (1) of Section 36 of the Income Tax Act, 1961, was inserted, to allow a deduction to an employer in respect of premium paid by him by cheque for insurance on the on the health of his employees in accordance with a scheme framed in this behalf by the General Insurance Corporation of India and approved by the Central Government. Section 80D was inserted in the Income-tax Act, 1961 to provide a deduction to an assessed up to Rs. 3,000/- a year in respect of the insurance premium paid by him by cheque. In para 4.2 of the Circular, it was mentioned that the scheme was being finalized separately. Accordingly, the scheme was finalize which is known as "Hospitalisation and Domicillary Hospitalisation Benefit Policy". (The said Circular is re-produced in Chaturvedi and Pithisaria's Income-tax Law, Fifth Edition, Volume 2, at page 3407 under Section 80D of that volume). Thereafter, Circular No. 537 dated 12th July, 1989 was issued by the C.B.D.T., which is re-produced in 179 ITR (Statutes) Page1, on the subject of Deduction of Tax at Source during the financial year 1989-90 under Section 192 of the Income-tax Act, 1961 and will be seen from para (ix) thereof that the said scheme framed by the General Insurance Corporation of India is referred to and it is stated that it was approved by the Central Government and was popularly known as "mediclaim". We had to resort to this exercise of finding out whether this Mediclaim Insurance Scheme approved by the Central Government, because, we did not get any assistance throughout the hearing on the genesis of the scheme and perhaps the insurance companies themselves were not aware that the scheme which was framed by the GIC was a Scheme approved by the Central Government, on an assumption that this fact could not have been deliberately withheld from the Court, if it was to their knowledge.

32.3 Therefore, option of renewal given to the insured being an agreed term of the Mediclaim policy, if denied by any arbitrary refusal or on the ground that the contract has become more onerous or burdensome, would amount to breach of term of the contract which enabled the insured to get the policy renewed by accepting the standing offer to get it renewed contained in Clause 11 of the prospectus. If the offer to get the policy renewed by timely payment of insurance can be sent by a reminder notice by the insurer and could be accepted by tendering the premium, there is no reason why the insured should not be in the same position to accept the offer to renew which was incorporated in Clause 11 of the prospectus of the Mediclaim insurance policy and also implied in the contract of insurance under which the insurance cover was stipulated to the continued on payment of the annual premium in time and it was provided that bonus benefits would be given where the continuance of cover was claim free and without break from year to year. Hardship or inconvenience or material loss by itself would not justify repudiation of the contract on the ground that there is thereby a change in the contractual obligation to renew the cover, when the insured fulfillls his obligation to pay the premium in time as stipulated. There is no impossibility of performance of the contractual obligation to renew the cover as stipulated merely because the deal becomes less profitable or entails a loss. When renewal is given in respect of the insurance under the same policy for a number of claim-free years by lefting the insured pay premium in time, then performance of the obligation to renew as per the stipulation of renewal, which is clearly implied having regard to the nature and contents of the contract and so understood by the insurer itself in its prospectus and the circular letter, cannot be refused on the ground that the continuance of cover by renewal of the Mediclaim insurance policy would become financially more onerous. Any arbitrary refusal to renew the cover by these Government Companies will be open to judicial review. Refusal would, however, be justified on the ground such as fraud, misrepresentation, non-fulfillment of the obligations by the insured, or where the performance of obligation under the contract to renew the policy as stipulated is dispensed with or excused under the provisions of the Indian Contract Act or of any other law.

37. Our above reasoning, which is in the context of the Mediclaim Insurance Scheme approved by the Central Government, floated by the GIC, and implemented by the Government Companies, draws its full vigour from the decision of the Hon'ble the Supreme Court in Biman Krishna Bose (supra), in which the Supreme Court, while considering the Mediclaim insurance policy, holding that these Insurance Companies were "State" under Article 12 of the Constitution, in terms, further held in paragraph 5 of the judgment that, the renewed contract was on the same terms and conditions as that of the original policy, and that if a view was taken that the Mediclaim policy cannot be renewed with retrospective effect, it would give handle to the Insurance Company to refuse the renewal of the policy on extraneous considerations thereby deprive the claim of the insured for treatment of disease which have appeared during the relevant time, and further deprive the insured, for all time to come, to cover those disease under an insurance policy by virtue of the exclusion clause. It was held that this being the disastrous effect of wrongful refusal of renewal of the insurance policy, the mischief and harm done to the insured must be remedied. The Court held that, once it is found that the act of the Insurance Company was arbitrary in refusing to renew the policy the policy is required to be renewed with effect from the date when it fell due for its renewal. Earlier, in paragraph 3 of the judgment, the Court held that, even in an area of contractual relations, the State and its instrumentalities are enjoined with the obligations to act with fairness and in doing so, can take into consideration only the relevant materials. They must not take any irrelevant and extraneous consideration while arriving at a decision. Arbitrariness should not appear in their actions or decisions. The Court agreed with the view taken by the High Court that the order of the Insurance Company refusing to renew the Mediclaim policy of the appellant was unfair and arbitrary. It is clear from the judgment that its ratio is directed against all arbitrary or unfair refusals to renew the Mediclaim policy. The fact that, in the case before the Supreme Court, the ground for refusal was extraneous, will not reduce the impact of the decision from the level of setting aside any arbitrary and unfair order to merely applying it to a particular instance where refusal is on some extraneous consideration, such as, approaching the Consumer Forum.

38. It was tried to be urged on the basis of Critical Illness Insurance Policy, by the learned counsel for the insurers that, under that policy, disability of insured arising out of serious illness, such as, coronary artery surgery, cancer, renal failure, stroke etc., the policy is required to be surrendered and cancelled on payment of claim and such policy cannot be required to be renewed. It will be seen from the Revised Underlying Guidelines of the Critical Illness Insurance Policy that it is a benefit policy covering disability of the insured. The policy is meant to cover earning individuals where the insured, the company or business will be affected financially due to the occurrence of disability from the critical illness. Therefore, no parallel can be drawn from the nature of that policy for urging that renewal of mediclaim policy can be refused at the sweetwill of the Insurance Company even when the renewal premium is paid in time. In fact, the guideline No. 4 of the said Undertaking Guidelines, which were relied upon by the learned counsel for the insurers, incorporates a pre-condition that the insured "should be having a Mediclaim policy preferably also an LIC policy". Therefore a person suffering from such critical illness in order to cover disability is required to have a Mediclaim policy which also supports the view that contracting of a disease, which is covered, during the period of existing policy cannot be a ground for arbitrary refusal of renewal when the premium is paid in time by such insured. The insurer may, however, be entitled to load the premium at the time of renewal if permissible under the existing contract and the relevant law prevalent in relation to charging of premium in such cases.