Full Judgment Text
2023INSC815
Non-Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4095 OF 2012
Life Insurance Corporation of India … Appellant
versus
Dravya Finance Pvt. Ltd. & Ors. … Respondents
J U D G M E N T
ABHAY S. OKA, J.
FACTUAL ASPECTS
1. Under Section 38 of the Insurance Act, 1938 (for short,
‘the Insurance Act’), an insured who is holding a policy of life
insurance issued by the appellant–Life Insurance Corporation
of India (insurer) is entitled to transfer or assign the policy with
or without consideration by an endorsement upon the policy
itself or by a separate instrument duly signed by the transferor
or by the assignor and attested by one witness. Unamended
sub-Section (2) of Section 38 provided for service of notice in
writing of transfer or assignment to the insurer in a manner set
out therein. Unamended Sub-Section (4) of Section 38
provided that upon receipt of a notice of transfer or assignment
Signature Not Verified
Digitally signed by
Deepak Singh
Date: 2023.09.06
17:38:34 IST
Reason:
under sub-Section (2) of Section 38, the appellant–insurer was
under an obligation to record the fact of such transfer or
Civil Appeal No.4095 of 2012
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assignment together with the date thereof and the name of the
transferee or assignee. On request of the person who gives
notice, the appellant–insurer was under an obligation to issue
a written acknowledgement of the receipt of such notice on
payment of a fee not exceeding Rs.1.
th
2. The appellant–insurer issued a circular on 24 April
2006 and imposed a registration charge of Rs.250 per
assignment. The first respondent–Dravya Finance Private
Limited, which is a finance company, challenged the said
circular before the Bombay High Court on the ground that
firstly, it is contrary to Section 38 of the Insurance Act and
secondly, it is in violation of Article 265 of the Constitution of
India as a levy of a tax or fee was sought to be made without
any authority of law. There were other challenges, such as
violation of Articles 14, 19(1)(g) and 300A of the Constitution of
India.
3. By the impugned judgment, the High Court of Judicature
at Bombay concluded that the levy of a sum of Rs.250/- for
registration of assignment under the impugned circular was
the levy of service charge or fee without there being any power
to do so. Therefore, the impugned circular was held to be
unconstitutional and was, accordingly, struck down.
SUBMISSIONS
4. The learned counsel appearing for the appellant–insurer
invited our attention to Section 6 of the Life Insurance
Corporation Act, 1956 (for short, ‘the LIC Act’). He submitted
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that under sub-Section (1) of Section 6, the appellant has a
duty to carry on life insurance business. In fact, he relied upon
sub-Section (3) of Section 6 of the LIC Act by pointing out that
in the discharge of its functions, LIC has to act in accordance
with business principles. He submitted that the appellant–
insurer has placed on record before the High Court more than
sufficient material indicating the large number of notices of
assignments received by the appellant and the enormous
expenditure involved in dealing with the same. He submitted
that when the appellant–insurer issues a life insurance policy,
it is a contract of insurance which is purely a business
transaction. He submitted that for registration of assignments,
service charges of Rs.250 per assignment are levied as a part
of the business transaction between the insured and the
appellant–insurer. He submitted that the levy of such a fee to
meet the expenditure is a part of the business contract which
will not attract Article 265 of the Constitution of India. The
learned counsel appearing for the appellant urged that 95% of
the surplus of the appellant is usually allocated to the
policyholders. He submitted that under sub-Section (4) of
Section 38, a fee of Rs.1 is provided for issuing an
acknowledgement of receipt of the notice of the assignment and
what is sought to be charged under the impugned circular, is
the fee or charge on account of administrative expenses
incurred for recording the assignment. He would, therefore,
submit that there is no illegality associated with the circular
which was impugned before the High Court. The learned
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counsel appearing for the respondent supported the impugned
judgment.
OUR CONCLUSION
5. Section 38 of the Insurance Act, before it was substituted
by the Act 5 of 2015, read thus:
“38. Assignment and transfer of
insurance policies.— (1) A transfer or
assignment of a policy of life insurance,
whether with or without consideration,
may be made only by an endorsement
upon the policy itself or by a separate
instrument, signed in either case by the
transferor or by the assignor, his duly
authorized agent and attested by at least
one witness, specifically setting forth the
fact of transfer or assignment.
(2) The transfer or assignment shall be
complete and effectual upon the
execution of such endorsement or
instrument duly attested but except
where the transfer or assignment is in
favour of the insurer shall not be
operative as against an insurer and shall
not confer upon the transferee or
assignee, or his legal representative, any
right to sue for the amount of such
policy or the moneys secured thereby
until a notice in writing of the transfer or
assignment and either the said
endorsement or instrument itself or a
copy thereof certified to be correct by
both transferor and transferee or their
duly authorized agents have been
delivered to the insurer:
Provided that where the insurer
maintains one or more places of
business in India, such notice shall be
Civil Appeal No.4095 of 2012
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delivered only at the place in India
mentioned in the policy for the purpose
or at his principal place of business in
India.
(3) The date on which the notice referred
to in sub-section (2) is delivered to the
insurer shall regulate the priority of all
claims under a transfer or assignment
as between persons interested in the
policy; and where there is more than one
instrument of transfer or assignment the
priority of the claims under such
instruments shall be governed by the
order in which the notices referred to in
sub-section (2) are delivered.
(4) Upon the receipt of the notice referred
to in sub-section (2), the insurer shall
record the fact of such transfer or
assignment together with the date
thereof and the name of the transferee or
the assignee and shall, on the request of
the person by whom the notice was
given, or of the transferee or assignee, on
payment of a fee not exceeding one
rupee, grant a written acknowledgement
of the receipt of such notice; and any
such acknowledgement shall be
conclusive evidence against the insurer
that he has duly received the notice to
which such acknowledgment relates.
(5) Subject to the terms and conditions
of the transfer or assignment, the
insurer shall, from the date of the receipt
of the notice referred to in sub-section
(2), recognise the transferee or assignee
named in the notice as the only person
entitled to benefit under the policy, and
such person shall be subject to all
liabilities and equities to which the
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transferor or assignor was subject at the
date of the transfer or assignment and
may institute any proceedings in
relation to the policy without obtaining
the consent of the transferor or assignor
or making him a party to such
proceedings.
(6)……………….
(7)………………. ”
6. This Court in the case of Life Insurance Corporation of
India v. Insure Policy Plus Services Private Limited and
1
Ors. has dealt with sub-Section (1) of Section 38 dealing with
the assignment and transfer of the policy. In paragraph 11 of
the said decision, this Court held that on transfer or
assignment of a policy and on the requisite procedure being
complied with, the assignee alone has an interest in the policy.
It was held that the insurer was bound by the provisions of
Section 38 to accept such transfer or endorsement. This Court
also considered amended sub-Section (2) of Section 38 of the
Insurance Act which enables the insured to decline to act upon
any endorsement made under sub-Section (1), where it has
sufficient reason to believe that such transfer or assignment is
not bona fide or is not in the interest of the policyholder or
public interest or for the purpose of trading of insurance policy.
7. In this case, we are not dealing with the issue when an
insurer can decline to act upon endorsement of assignment. In
this case, we are concerned with the impugned circular which
1
(2016) 2 SCC 507
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prescribes fees for recording the assignment of policies. In the
th
impugned circular dated 24 April 2006, it is stated thus:
“ At present, assignment of policies is
being registered without any charges.
However, the cost of the transaction of
assignments/re-assignment of a policy
is considerable. Therefore, it has now
been decided to levy service charges of
Rs.250/- transaction of effecting
assignment under a policy .. .. .. .. .. .. ..
.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
.. .. .. .. .. .. .. ”
8. The question is whether the appellant–insurer is lawfully
entitled to levy a service charge of Rs.250/- for a transaction of
assignment of a life insurance policy. In the impugned order,
the High Court, in detail, went into the question of whether the
levy of Rs.250/- under the impugned circular was a tax or a
fee. The High Court held that by the impugned circular, the
appellant has provided for service charge or fee for the services
to be rendered to the person requesting for registration of an
assignment. This finding regarding the nature of the levy has
not been assailed by the appellant–insurer.
9. Now, the only question is whether the appellant had a
lawful authority to levy a service charge or fee for the
transaction of assignment or transfer of policy. It is not the
case of the appellant–insurer that in the contract of policy,
there is any clause which allows such a levy. Moreover, the
assignment or transfer of policy is governed by statutory
provisions in the form of Section 38 of the Insurance Act. It is
well settled that if the law requires a particular thing to be done
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in a particular manner, it must be done in that manner and
not in any other manner. Section 38 does not authorise the
levy of any such fee. Unamended sub-Section (2) of Section 38
of the Insurance Act provided for giving acknowledgement of a
notice of transfer or assignment given in terms of sub-Section
(2) of Section 38. It was specifically provided therein that the
insurer can charge and levy a fee not exceeding Rs.1 for giving
such acknowledgement. Thus, it prescribed a fee for issuing
acknowledgement of notice of assignment or transfer. Though,
there was a specific provision made to levy a fee for giving
acknowledgement of notice of transfer, the legislature, in its
wisdom, has not provided any fee or charge for recording the
assignment or transfer in the records of the insurer.
Interestingly, in the substituted Section 38 of the Insurance
th
Act, which was brought into force on 26 December 2014, the
provision enabling the charging of a fee of Rs.1 for
acknowledgement has been done away with.
10. Under Section 48 of the LIC Act, the general rule-making
power is vested in the Central Government. Under Section 49,
the power to make regulations vests in the appellant–insurer.
It is an admitted position that neither rules under Section 48
have been framed nor regulations under Section 49 have been
made, authorising the appellant–insurer to levy a service
charge or fee for recording the endorsement of transfer or
assignment by the appellant–insurer. The rule-making power
under Section 114 of the Insurance Act has not been exercised
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for this purpose. As mentioned earlier, even in the contract of
policy, such a provision has not been made.
11. At this stage, we may note that the Insurance Regulatory
and Development Authority of India (Fee for granting written
acknowledgement of the receipt of Notice of Assignment or
Transfer) Regulations, 2015 have been made in accordance
with the powers conferred by Section 114A of the Insurance
th
Act. The Regulations were brought into force on 29 April
2015. Regulations 3 and 4 of the said Regulations read thus:
“Fee for granting acknowledgement of
Notice of Assignment or Transfer:
(3) An Insurer is permitted to collect the
following fee for granting a written
acknowledgement of the receipt of notice of
assignment or transfer.
(a) In respect of those policies that are
issued in electronic form as specified by
the regulations under the provisions of
Section 14(2) of the Act the fee collected
shall not exceed Rs.50 (Rupees fifty only)
inclusive of applicable taxes;
(b) In respect of policies issued other
than those referred under Regulation
(3)(a) above the fee collected shall not
exceed Rs.100 (Rupees Hundred Only)
inclusive of applicable taxes;
(4) No other fee shall be collected for
rendering any other services such as,
recording the fact of the transfer or
assignment or any other services
connected to the assignment or transfer
prescribed in Section 38 of the Act.”
(emphasis added)
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Hence, the said Regulations prohibit the levy of any fee for
recording the assignment of policies.
12. For the aforesaid reasons, we find no error in the view
taken by the High Court that the appellant–insurer had no
right to claim fees of Rs.250/- for recording the endorsement
of assignment or transfer.
13. Hence, there is no merit in this appeal and the same is,
accordingly, dismissed.
….…………………….J.
(Abhay S. Oka)
…...…………………...J.
(Sanjay Karol)
New Delhi;
September 6, 2023.
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