Case Title: Life Insurance Corporation of India V. Dravya Finance Pvt. Ltd. & Ors, Civil
Summary
The Supreme Court ruled that the Life Insurance Corporation (LIC) cannot impose a fee or service charge for endorsing a policy transfer or assignment. The ruling was based on a circular issued by LIC in 2006, which levied a registration fee of Rs.250 per policy assignment. The Bombay High Court deemed the circular unconstitutional due to its unauthorized imposition of a service charge or fee. The Supreme Court cited Section 38 of the Insurance Act, 1938, which pertains to policy assignment and transfer, to determine that LIC lacks the authority to charge a fee for acknowledging a policy transfer. The court also noted that no regulations or rules authorizing LIC to charge a fee for endorsing the transfer of a policy have been established. The court denied the LIC’s appeal and affirmed the Bombay High Court’s decision.
About the case
The Supreme Court ruled that the Life Insurance Corporation (LIC) lacks the authority to assess a fee or service charge in exchange for endorsing a policy transfer or assignment. The Supreme Court was deliberating on the legality of a circular issued by LIC on April 24, 2006, which levied a registration fee of Rs.250 per policy assignment. As a result of its unauthorized imposition of a service charge or fee, the Bombay High Court ruled that this circular was unconstitutional.
In their ruling, a bench consisting of Justices Abhay S. Oka and Sanjay Karol cited Section 38 of the Insurance Act, 1938, which pertains to policy assignment and transfer, to determine that LIC lacks the authority to charge a fee for acknowledging a policy transfer: “Section 38 of the Insurance Act, 1938 does not permit the imposition of like-kind charges.” An acknowledgment of a notice of transfer or assignment issued pursuant to sub-Section (2) of Section 38 was required by the Insurance Act’s unamended subSection (2). For providing such an acknowledgment, the document expressly permits the insurer to assess and levy a fee not exceeding Rs. 1. It therefore mandated the imposition of a charge for the issuance of acknowledgement of notice of transfer or assignment. While a provision existed to impose a fee for acknowledging a notice of transfer, the legislature, in its wisdom, has not established any charges or fees for documenting the assignment or transfer in the insurer’s records. Notable is the elimination of the provision permitting the imposition of a Rs.1 acknowledgement fee in the amended Section 38 of the Insurance Act, which went into effect on December 26, 2014. Section 49 of the LIC Act grants LIC the authority to make regulations, while Section 48 of the LIC Act vests the Central Government with the authority to make general rules.
The Apex Court noted this. The Supreme Court noted the absence of regulations or rules authorizing LIC to charge a fee for endorsing the transfer of a policy: “It is an established fact that neither regulations nor rules under Section 48 nor Section 49 have been established to authorize the appellant–insurer to charge a service charge or fee for documenting the endorsement of transfer or assignment by the appellant–insurer.” Section 114 of the Insurance Act does not authorize the use of rule-making authority for this purpose. Furthermore, the Court made reference to the 2015 Regulations of the Insurance Regulatory and Development Authority of India (fee for issuance of written confirmation of receipt of notice of assignment or transfer). The Court noted that the aforementioned Regulations explicitly forbid the imposition of any charges in relation to the assignment of policies. Thus, the Court denied the LIC’s appeal and affirmed the Bombay High Court’s decision.
