Blocon Limited vs. Union Of INDIA & Ors

Held

The Court held that the GIC Circulars dated 12.02.2019 and 21.02.2019 were endorsements to reinsurance treaties between GIC and various insurance companies, and thus, they only applied to the insurance premium chargeable by GIC for granting reinsurance. The Court found that GIC was not fixing the primary insurance premiums payable by the petitioners to their respective insurers. The Court reasoned that the petitioners were seeking judicial review into the quantum of premium fixed by GIC for reinsurance, which falls within GIC's commercial wisdom and does not warrant interference under Article 226. The Court also noted that insurance companies are only mandatorily required to reinsure 5% of the risk in the pharmaceutical industry. Therefore, the fundamental premise that GIC had fixed the insurance premium chargeable by general insurance companies was erroneous, and the petitioners' challenge based on this premise failed. Regarding the IIBI Circular, the Court held that it did not have statutory force and served only as reference rates, and GIC was entitled to adopt them. The Court also found that the GIC Circulars clearly applied to Occupancy Code-2043, which includes bulk drugs, and that GIC and the insurance companies were in agreement on this interpretation. Consequently, the petitions were dismissed.

Facts

The petitioners, Cadila Healthcare Limited, Wockhardt Limited, Blocone Limited, and Lupin Limited, are pharmaceutical companies. They challenged Circulars dated 12.02.2019 and 21.02.2019 issued by the General Insurance Corporation of India (GIC), which they claimed led to a steep rise in their insurance premiums. These GIC Circulars directed the implementation of 'Loss Costs' published by the Insurance Information Bureau of India (IIBI) in its Circular dated 24.03.2017. The petitioners argued that the IIBI Circular, specifically Entry No. 23 for Chemical Manufacturing (Flash Point below 32°C) at ₹1.94 per mille, did not cover 'bulk drugs' and that GIC's circulars were therefore wrongly applied to them. The GIC clarified that its circulars pertained to reinsurance treaties and did not dictate primary insurance premiums.

Key Issues

1. Whether the GIC Circulars dated 12.02.2019 and 21.02.2019, which directed the implementation of IIBI Loss Costs, effectively fixed the insurance premiums payable by the petitioners to their insurers, thereby warranting judicial review under Article 226 of the Constitution of India. 2. Whether the IIBI Circular dated 24.03.2017, which provided reference rates for 'Loss Costs', could be implemented for the financial year 2019-2020. 3. Whether the action of the insurance companies in applying the impugned GIC Circulars to the bulk drug industry was erroneous, considering the petitioners' contention that the IIBI Circular did not specifically mention 'bulk drugs'. Petitioner's Arguments: The petitioners argued that the GIC Circulars effectively prevented insurance companies from offering lower rates by stipulating that risks could not be ceded to the treaty if lower rates were offered to the primary insured. They contended that the IIBI Circular did not cover 'bulk drugs' and therefore GIC's circulars, based on it, were wrongly applied to their industry, leading to arbitrary and unreasonable premium increases. Revenue/State's Arguments: The GIC clarified that its circulars were endorsements to reinsurance treaties and only applied to the premium chargeable by GIC for providing reinsurance. It was argued that the GIC was free to determine its reinsurance rates and that the primary insurers were free to offer lower rates to the insured, though such risks might not be reinsured by GIC. The GIC also confirmed that Occupancy Code-2043, which includes bulk drugs, was covered under 'chemical manufacturing (below 32 ºC flash point)' in its circulars.