LIC Not Entitled To Levy Fee For Endorsing Transfer Or Assignment Of A Policy: Supreme Court


The Supreme Court on Wednesday held that the Life Insurance Corporation (LIC) is not entitled to levy a service charge or fee for endorsing the assignment or transfer of a policy.

The Apex Court was considering the legality of a circular dated 24th April 2006 issued by LIC that imposed a registration charge of Rs.250 per assignment of policy. The Bombay High Court had struck down this circular as unconstitutional, holding that it was levying service charge or fee without any power to do so.

A bench of Justice Abhay S Oka and Justice Sanjay Karol referred to Section 38 of the Insurance Act, 1938 that deals with assignment or transfer of policy, to hold that LIC is not entitled to levy a fee for acknowledging the transfer of a policy:

“Section 38 does not authorise the levy of any such fee. Unamended sub-Section (2) of Section 38 of the Insurance Act provided for giving acknowledgement 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 acknowledgement. Thus, it prescribed a fee for issuing acknowledgement of notice of assignment or transfer. 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 Apex Court noted that under Section 48 of the LIC Act, the general rule-making power is vested with the Central Government and under Section 49 of the Act, the power to make regulations vests with LIC. The Apex Court observed that no Rules or Regulations had been framed authorising LIC to levy such a fee for endorsing the transfer of a policy:

“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.”

Additionally, the Court also referred to the Insurance Regulatory and Development Authority of India (fee for granting written acknowledgement of the receipt of notice of assignment or transfer) Regulations, 2015. The Court observed that the said Regulations prohibit the levy of any fee for assignment of policies.

The Court thus dismissed the appeal of the LIC and upheld the view of the Bombay High Court.

Case Title: Life Insurance Corporation of India V. Dravya Finance Pvt. Ltd. & Ors, Civil Appeal No.4095 of 2012

Related articles


Recent articles