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Life Insurance Corporation of India Vs. Dravya Finance Pvt. Ltd. and Ors. - (Supreme Court) (06 Sep 2023)

Rules under Section 48 of LIC Act does not authorise the insurer to levy a service charge or fee for recording the endorsement of assignment or transfer



The Appellant-insurer issued a circular on 24th April 2006 and imposed a registration charge of Rs. 250 per assignment. The first Respondent-Dravya Finance Private Limited, which is a finance company, challenged the said circular before the Bombay High Court on the ground that firstly, it is contrary to Section 38 of the Insurance Act, 1938 and secondly, it is in violation of Article 265 of the Constitution of India as a levy of a tax or fee was sought to be made without any authority of law. There were other challenges, such as violation of Articles 14, 19(1)(g) and 300A of the Constitution of India, 1950.

By the impugned judgment, the High Court concluded that the levy of a sum of Rs. 250 for registration of assignment under the impugned circular was the levy of service charge or fee without there being any power to do so. Therefore, the impugned circular was held to be unconstitutional and was, accordingly, struck down.

Under Section 48 of the LIC Act, 1956 the general rule-making power is vested in the Central Government. Under Section 49, the power to make Regulations vests in the Appellant-insurer. 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 this purpose. Even in the contract of policy, such a provision has not been made.

At this stage, present Court may note that the Insurance Regulatory and Development Authority of India (Fee for granting written acknowledgement of the receipt of Notice of Assignment or Transfer) Regulations, 2015 have been made in accordance with the powers conferred by Section 114A of the Insurance Act. The Regulations were brought into force on 29th April 2015. Hence, the said Regulations prohibit the levy of any fee for recording the assignment of policies.

There is 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. Appeal dismissed.


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