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LIFE INSURANCE CORPORATION OF INDIA Vs. DRAVYA FINANCE PVT. LTD. AND ORS.

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CITATIONSC 759: 2023 INSC 815
CIVIL APPEAL NO.4045 Of 2012
DATE OF JUDGEMENT6th September 2023
COURTSupreme Court of India
APPELLANTLife Insurance Corporation of India
RESPONDENTDravya Finance Pvt. Ltd. & Ors
BENCHAbhay S. Oka; J., Sanjay Karol; J.

INTRODUCTION

The case of Life Insurance Corporation of India Vs. Dravya Finance Pvt. Ltd. & Ors is an appeal case regarding whether the Life Insurance Corporation of India is entitled by the authority of law to levy fees for the purpose of recording of assignment or for the transfer of policy. A case originally proceeded through in the Bombay High Court. This case was appealed though by the Life Insurance Corporation in the Supreme Court of India. The judgement provided implications for the Life Insurance Corporation of India over the matter of charge of fees from its insurers and its customers.

FACTS OF THE CASE

  1. The respondents are a Non-Banking Finance Company which were operating in the advancement of loans as against the life insurance policies.
  2. The appellant by passing two circulars in 2003 and 2005 respectively had done so to prohibit the transfer of life insurance policies.
  3. The circulars were challenged before the Bombay High Court by the respondents and by following a similar decision of the Insure Policy Plus Services Ltd. Vs. Life Insurance Corporation, the circulars of the Life Insurance Corporation were declared to be illegal and null and void. 
  4. The decision of the Bombay High Court was challenged by the appellants in the Supreme Court of India but no stay was granted by the Supreme Court of India in favour of the appellants.
  5. The appellants implemented the circulars and imposed on to levy a fee of Rs. 250 per assignment for restricting assignments in favour of the respondents.
  6. The respondents challenged the circulars in the Bombay High Court and prayed that they need to be struck because they were against the Section 38 of the Insurance Act, 1938.
  7. Further they contended stating that the appellants had no authority to levy fee or tax, as it is against the Article 265 of the Constitution of India, and it was in violation of Article 14 being arbitrary and unreasonable, violation of Article 19(1)(g) as it restricts the respondents from carrying out their business.
  8. The High Court of Bombay held that the circular for the levy of any fees or charge was without the authority to do so, and so held it unconstitutional and struck it down.
  9. The decision of the Bombay High Court was appealed down by the appellants in this case before the Supreme Court of India.

ISSUES RAISED

Whether the appellants, Life Insurance Corporation of India was entitled to impose a service charge or fee for sanctioning of assignment or for the transfer of policy by the authority of law?

CONTENTIONS OF THE APPELLANT

  1. The counsel for the appellant stated that, According to Section 6(1) of the Life Insurance Corporation Act, 1956, their organisation was entitled to carry life insurance business indeed it was their duty.
  2. It was further asserted that according to the Section 6 of the LIC Act, 1956 empowered them to carry out their business in accordance to the business principles.
  3. The counsel emphasized that the appellants were in fact incurring huge expenditure in dealing with the large number of notices of assignments.
  4. They submitted that the levying of fees was to be considered to be part of the business transaction which they were entitled to carry out. It was not against the containment of Article 265. 
  5. They stated that a major portion that is 95% of their revenue is distributed to the policyholders and the remaining to the central government after meeting out their liabilities.
  6. It was contended that Section 38 of the Insurance Act, 1938 empowered them to levy service charges or fees as a charge of administrative expenses and their circular was not illegal or void.

CONTENTIONS OF THE RESPONDENT

             They stuck to the previous judgement upheld by the Bombay High Court where they contended that the circular for levying a charge of Rs. 250 was not authorised by the Section 38 of the Insurance Act, 1938, and the circular was a violation of Articles 14, Article 19(1)(g), Article 265 and Article 300A of the Constitution of India. The High Court of Bombay held the circular unconstitutional and struck it down as null and void. The stay prayed down by the respondents the Life Insurance Corporation of India was rejected. 

JUDGEMENT

The Supreme Court of India upheld the decision of the High Court of Bombay and said that the appellant had no right to claim fees of Rs. 250 for recording the endorsement of assignment or transfer of notice and the appeal was dismissed.

Under Section 38(2) of the Insurance Act, 1938, it was clearly provided that the only a charge of Rs. 1 could be made for the purpose of giving acknowledgement of notice of transfer and anything that is well settled in law should be strictly adhered to and not in any other manner.

According to Section 48 of the LIC Act, 1956, power of rule making is only provided to the Central Government and Section 49 of the LIC Act, 1956 provides the power to make regulations to the appellant but it was quite clear that the no such rules or regulations have been made with regards to this aspect of levying charge or fees.

The Regulatory and Development Authority of India(Fee for granting written acknowledgement of the receipt of Notice of Assignment or Transfer) Regulations, 2015 is made in accordance with the powers conferred by the Section 114A of the Insurance Act, 1938. According to the Regulation 4 it was prescribed that No other fees shall be collected other than that which is provided with the Regulation 3 of the same regulations. The regulation 4 strictly prohibited charge of any fees for recording the assignment of policies.

The appeal was dismissed and the decision of the Bombay High Court was upheld.

CONCLUSION

In conclusion, this case of Life Insurance Corporation of India Vs. Dravya Finance Pvt. Ltd and Ors. Provided and concluded the issue over whether The Life Insurance Corporation was rested with the authority to levy service charges or tax and it was made clear that in the absence of an explicit provision indicating the settled law that states that something to be done in the particular manner stamped.

REFERENCES

  1. https://updates.manupatra.com/roundup/cpntentsummary.aspx?iid=43884&text=
  2. https://www.thelawadvice.com/news/landmark-ruling-lic-prohibitrd-from-imposing-fees-on-policy-transfers
  3. www.indiankanoon.com

Written by MAGIZHINI M an intern under legal vidhiya

Disclaimer: The materials provided herein are intended solely for informational purposes. Accessing or using the site or the materials does not establish an attorney-client relationship. The information presented on this site is not to be construed as legal or professional advice, and it should not be relied upon for such purposes or used as a substitute for advice from a licensed attorney in your state. Additionally, the viewpoint presented by the author is of a personal nature.

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