LIC cannot levy Rs 250 for transfer of policy: Supreme Court

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Court said that neither were rules made for this purpose by the Government and nor was any regulation made for levying service charge by applicant under the LIC Act

The Supreme Court has rejected the Life Insurance Corporation of India's (LIC) claim to levy a fee of Rs 250 for recording assignment or transfer of an insurance policy, noting that the law does not authorise for it.

A bench of Justices Abhay S Oka and Sanjay Karol said if the law requires certain things to be done in a certain manner, it can't be done in other manner, as the rule making power was not exercised for the purpose here.

The court also pointed out the Insurance Regulatory and Development Authority of India (Fee for granting written acknowledgement of the receipt of Notice of Assignment or Transfer) Regulations, 2015 which have been made in accordance with the powers conferred by Section 114A of the Insurance Act and brought into force on April 29, 2015, prohibited the levy of any fee for recording the assignment of policies.

The court dismissed an appeal filed by the LIC against the Bombay High Court's judgement which struck down as unconstitutional a circular issued on April 24, 2006, imposing a registration charge of Rs 250 per assignment. On a writ petition filed by Dravya Finance Private Ltd, the HC had concluded the levy of service charge or fee was without there being any power to do so. 

In its appeal, the LIC contended that a large number of notices of assignments were received which involved the enormous expenditure. It also claimed when the appellant–insurer issues a life insurance policy, it is a contract of insurance which is purely a business transaction. There was no illegality in the circular, as service charges of Rs 250 per assignment are levied as a part of the business transaction. 

The court, however, held, "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 a particular manner, it must be done in that manner and not in any other manner."

It also pointed out Section 38 does not authorise the levy of any such fee. 

"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 Act, which was brought into force on 26th December 2014, the provision enabling the charging of a fee of Rs 1 for acknowledgement has been done away with," the bench noted.

The court also said under Section 48 of the LIC Act, the general rule-making power is vested in the central government and under Section 49, the power to make regulations vests in the appellant–insurer. 

However, 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 for the purpose, it said.

Finding no merit in the appeal, the bench said there was 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.

Case Title: LIC Vs Dravya Finance