Case Note & Summary
The petitioners, Dravya Finance Pvt. Ltd. (a Non-Banking Finance Company) and its director Hasmukh Rawal, challenged a Circular dated 24.4.2006 issued by the Life Insurance Corporation of India (LIC) which imposed a charge of Rs.250/- per assignment of life insurance policies in favour of 'Finance Organizations'. The petitioners were engaged in advancing loans against assignment of life insurance policies. Earlier, LIC had issued two circulars in 2003 and 2005 prohibiting transfer of policies, which were challenged by the petitioners in Writ Petition No.3282 of 2004 and by another entity in Writ Petition No.2159 of 2004. The latter petition was allowed by the Bombay High Court on 22.3.2007, declaring those circulars illegal and void. Though LIC challenged that judgment before the Supreme Court, no stay was granted. Subsequently, LIC implemented the impugned Circular imposing the charge. The petitioners contended that the circular was ultra vires Section 38 of the Insurance Act, 1938, which confers an absolute right to assign life insurance policies, and that LIC had no power to impose such a charge. They also argued that the circular violated Article 265 (tax without authority of law) and Article 14 (discrimination) of the Constitution. The court analyzed the provisions of Section 38 and found that the right to assign is absolute and cannot be restricted by LIC through a circular. The imposition of a charge effectively restricts that right. The court also noted that the circular discriminated against finance organizations as no such charge was imposed on other assignees. Consequently, the court allowed the writ petition and struck down the impugned Circular as illegal and void.
Headnote
A) Insurance Law - Assignment of Life Insurance Policies - Section 38 Insurance Act, 1938 - Ultra Vires - The impugned Circular imposing a charge of Rs.250/- per assignment in favour of Finance Organizations was held to be ultra vires Section 38 of the Insurance Act, 1938 as it restricts the absolute right of assignment conferred by the section. The court held that LIC has no power to impose such a charge and the circular is illegal and void. (Paras 1-3)
B) Constitutional Law - Levy of Fee - Article 265 Constitution of India - Without Authority of Law - The charge imposed by the impugned Circular amounts to a tax or fee without the authority of law, violating Article 265 of the Constitution. The court held that LIC cannot levy any charge on assignments without statutory backing. (Paras 2-3)
C) Constitutional Law - Equality - Article 14 Constitution of India - Discrimination - The impugned Circular discriminates against Finance Organizations by imposing a charge only on assignments in their favour, while other assignees are not charged. This was held to be violative of Article 14. (Paras 2-3)
Issue of Consideration
Whether the impugned Circular dated 24.4.2006 imposing a charge of Rs.250/- per assignment in favour of Finance Organizations is ultra vires Section 38 of the Insurance Act, 1938 and violative of Articles 14 and 265 of the Constitution of India.
Final Decision
The court allowed the writ petition and struck down the impugned Circular dated 24.4.2006 as illegal and void.
Law Points
- Assignment of life insurance policies
- Ultra vires
- Section 38 Insurance Act
- 1938
- Article 14 Constitution of India
- Article 265 Constitution of India
- Levy of fee without authority of law
- Right to assign
- Restriction on assignment
Case Details
2010 LawText (BOM) (05) 15
Writ Petition No. 1579 of 2007
F.I. Rebello, J.H. Bhatia
Mr. N.H. Seervai, Senior Counsel, with Mr. Sharan Jagtiani, & Mr. Dhaval Kenia i/b. M & M Legal Ventures for the petitioner; Ms. Snehal Paranjpe with Mr. O. Mohandas & Mr. Inder Tiwana i/b. M/s. Little & Co. for respondent No.1
Dravya Finance Pvt. Ltd. and Hasmukh Rawal
Life Insurance Corporation of India and Insurance Regulatory Development Authority
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Writ petition challenging a circular issued by LIC imposing a charge on assignments of life insurance policies in favour of finance organizations.
Remedy Sought
The petitioners sought to strike down the impugned Circular dated 24.4.2006 as illegal and void.
Filing Reason
The petitioners were affected by the circular which imposed a charge of Rs.250/- per assignment, making assignments onerous and restrictive.
Previous Decisions
Earlier circulars dated 22.12.2003 and 2.3.2005 were challenged in Writ Petition No.3282 of 2004 and similar petition in Writ Petition No.2159 of 2004, which was allowed on 22.3.2007 declaring those circulars illegal and void. That judgment was challenged before the Supreme Court but no stay was granted.
Issues
Whether the impugned Circular is ultra vires Section 38 of the Insurance Act, 1938?
Whether the impugned Circular is without authority of law?
Whether the impugned Circular violates Article 265 of the Constitution of India?
Whether the impugned Circular violates Article 14 of the Constitution of India?
Submissions/Arguments
The petitioners argued that Section 38 of the Insurance Act, 1938 confers an absolute right to assign life insurance policies and LIC has no power to impose any charge or restriction on such assignment.
The petitioners argued that the circular levies a tax or fee without authority of law, violating Article 265.
The petitioners argued that the circular discriminates against finance organizations as no such charge is imposed on other assignees, violating Article 14.
Ratio Decidendi
The right to assign a life insurance policy under Section 38 of the Insurance Act, 1938 is absolute and cannot be restricted by LIC through a circular imposing a charge. Such a charge amounts to a restriction on the statutory right and is ultra vires. Additionally, the circular violates Article 265 as it levies a fee without authority of law, and Article 14 as it discriminates against finance organizations.
Judgment Excerpts
The petitioners have challenged Circular No. Mktg/CRM/558/23 dated 24.4.2006 which came into force with effect from 1.5.2007 (the impugned Circular).
According to the petitioners, the impugned Circular is liable to be struck down on the following grounds :- (i) It is ultra vires Section 38 of the Insurance Act, 1938; (ii) it is generally without authority of law as the respondent has no power to issue the same; (iii) it is in violation of Article 265 of the Constitution of India as it levies a tax or fee without the authority of law; (iv) it is ultra vires Article 14 of the Constitution of India
Procedural History
The petitioners filed Writ Petition No.1579 of 2007 challenging the impugned Circular dated 24.4.2006. Earlier, similar circulars were challenged in Writ Petition No.3282 of 2004 and Writ Petition No.2159 of 2004, which was allowed on 22.3.2007. The judgment in that petition was challenged before the Supreme Court but no stay was granted. The present petition was heard and judgment reserved on 12.3.2010 and pronounced on 19.5.2010.
Acts & Sections
- Insurance Act, 1938: Section 38
- Constitution of India: Article 14, Article 265
