Supreme Court has delivered a verdict with profound implications for the Life Insurance Corporation (LIC). The country's highest judicial authority has unequivocally ruled that LIC lacks the legal mandate to impose service charges or fees for endorsing policy transfers and assignments.
This landmark judgment is the culmination of an exhaustive examination of a 2006 circular issued by LIC, which enforced a registration fee of Rs. 250 for each policy assignment. The Bombay High Court had previously deemed this circular unconstitutional, highlighting LIC's absence of legal authority to impose such a fee.
A panel comprising Justice Abhay S Oka and Justice Sanjay Karol delved into Section 38 of the Insurance Act, 1938, a dedicated section dealing with policy assignments and transfers. The Supreme Court decisively declared that LIC's claims to levy fees for acknowledging policy transfers lacked any legal foundation:
"Section 38 provides no authorization for such fees. The unaltered sub-Section (2) of Section 38 previously stipulated that insurers could charge up to Rs. 1 for providing acknowledgments in response to notices of transfer or assignment, distinctly delineating a fee structure. Interestingly, the revised Section 38, effective from December 26, 2014, omitted the clause allowing a fee of Rs. 1 for acknowledgments."
Furthermore, the Supreme Court highlighted the glaring absence of any legal authorization for LIC to impose such fees. Neither rules under Section 48 nor regulations under Section 49 had been established, empowering LIC to impose service charges or fees for recording policy transfer endorsements:
"Neither rules under Section 48 nor regulations under Section 49 exist, which would mandate LIC to levy service charges or fees for recording transfer or assignment endorsements. The rule-making authority under Section 114 of the Insurance Act was not exercised for this purpose."
The Court also emphasized the relevance of the 2015 Insurance Regulatory and Development Authority of India (IRDAI) Regulations, explicitly prohibiting fees for policy assignments.
As a direct consequence of this momentous verdict, LIC's appeal was unequivocally dismissed by the Supreme Court, thereby affirming the Bombay High Court's judgment. This landmark ruling establishes an enduring legal precedent, underscoring the imperative for insurance entities to scrupulously adhere to the regulations and statutes governing their operations, refraining from imposing unauthorized fees or charges on policyholders.
Case Title: Life Insurance Corporation of India V. Dravya Finance Pvt. Ltd. & Ors, Civil Appeal No. 4095 of 2012
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