LI Network
Published on: 10 September 2023 at 17:30 IST
The Supreme Court has ruled that the Life Insurance Corporation (LIC) is not permitted to impose a service charge or fee for endorsing the assignment or transfer of a policy.
This decision comes following the examination of a circular issued by LIC on April 24, 2006, which introduced a registration charge of Rs. 250 for each policy assignment.
The Bombay High Court had previously declared this circular unconstitutional, asserting that LIC had no authority to levy a service charge or fee.
In reaching its verdict, a bench comprising Justice Abhay S Oka and Justice Sanjay Karol referred to Section 38 of the Insurance Act, 1938, which deals with policy assignment or transfer. The court held that LIC lacked the authority to charge a fee for acknowledging policy transfers, stating:
“Section 38 does not authorize the levy of any such fee. Unamended sub-Section (2) of Section 38 of the Insurance Act provided for giving acknowledgment 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 acknowledgment. Thus, it prescribed a fee for issuing acknowledgment of notice of assignment or transfer.
Though there was a specific provision made to levy a fee for giving acknowledgment 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 Act, which was brought into force on 26th December 2014, the provision enabling the charging of a fee of Rs.1 for acknowledgment has been done away with.”
The court also highlighted that neither Section 48, which grants rule-making power to the Central Government under the LIC Act, nor Section 49, which gives LIC the authority to make regulations, authorized LIC to impose such a fee. Furthermore, it noted that the Insurance Regulatory and Development Authority of India (IRDAI) Regulations from 2015 prohibit charging any fee for policy assignments.
Consequently, the Supreme Court rejected LIC’s appeal and upheld the Bombay High Court’s decision.
Case Title: Life Insurance Corporation of India V. Dravya Finance Pvt. Ltd. & Ors, Civil Appeal No.4095 of 2012
