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The "living will" authorises patients to give explicit instructions in advance about the medical treatment to be administered when they are terminally ill or no longer able to express informed consent.
A person suffering from terminal illness has the right to refuse medical treatment to avoid "protracted physical suffering", said the judgement peppered with quotes of writers and philosophers.
Passive euthanasia will apply only to a terminally ill person with no hope of recovery, the judges said, issuing guidelines that they said would be in place until a law was enacted.
Passive euthanasia is when medical treatment is withdrawn with the deliberate intention to hasten the death of a terminally ill patient.
To contest a living will, a family member or a friend can go to the High Court, which will ask a medical Board to decide if passive euthanasia is needed.
The Chief Justice, while reading out the judgment, said though there were four separate opinions of the bench, all the judges were unanimous that the 'living will' should be permitted since a person cannot be allowed to continue suffering in a comatose state when he or she doesn't wish to live.
A national debate over the legalisation of euthanasia revolved around Aruna Shanbaug, a nurse who spent 42 years in a vegetative state after a brutal rape in 1973, and died in 2015.
Though the Supreme Court in 2011 rejected a petition to stop the force-feeding of Aruna Shanbaug, it allowed "passive euthanasia" for the first time, and said that life support could be legally removed for some terminally ill patients.
"This is an important, historic decision, which clears the air," said supreme court lawyer Prashant Bhushan."Everybody will breathe a sigh of relief, because people were earlier apprehensive that if they withdrew life support, they could be prosecuted for culpable homicide," he added.
Active euthanasia, by administering a lethal injection, remains illegal in India.
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